Former SEC Chairman Embraces Climate-Related Disclosure

Jay Clayton had previously defended voluntary over mandatory parameters on ESG-related disclosures.

Public corporations should disclose their plans for achieving net-zero carbon emissions by 2050, said former Chairman of the US Securities and Exchange Commission (SEC) Jay Clayton, having favoured only voluntary disclosures while in office. 

Speaking to Mark Wiseman, former Chair of the Global Investment Committee at BlackRock, at the Funds Congress, Clayton said corporates should disclose “everything they know with a fair degree of certainty that would be material to an investor” about their exposure to climate risk.  

However, he added that a US climate risk disclosure framework should be subject to a “safe harbour” which will protect companies that made long-term estimates of climate risk in “good faith”. This was a point both Wiseman and Clayton reiterated in an opinion piece for CNBC, responding to BlackRock CEO Larry Fink’s 2021 letter to CEOs. 

“The further you project out into the future how your company will be impacted by climate risk, the less that certainty exists,” he said.  

In 2018, Clayton defended voluntary ESG disclosures as opposed to mandatory, insisting that flexible requirements would be effective. “Although third-party standards relating to ESG topics may allow for comparability across companies, that does not mean that issuers should be required to follow these frameworks in order to comply with SEC rules. Each company, and each sector, has its own circumstances, which may or may not fit within a standard framework,” he said at the time. 

Although Clayton did not explicitly endorse mandatory ESG disclosures yesterday, he acknowledged the importance of companies’ efforts to mitigate climate risk, and the role of regulators in ensuring investors have all necessary and relevant information, calling for an “evolution” of disclosures through global standardisation. “An asymmetric or patchwork framework isn’t going to allow for meaningful disclosure on climate risk,” Clayton added. 

Acting SEC Chair Allison Herren Lee has been more vocal on climate-related disclosures, arguing that “the time for silence has passed”. 

On Wednesday, she directed the Division of Corporation Finance to “enhance its focus on climate-related disclosure in public company filings”, assessing the extent to which public companies have addressed the topics identified in the original guidance on climate-related reporting published in 2010. Following this, the SEC will be updating the guidance by taking into account developments over the last decade.  

“Now more than ever, investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future. Ensuring compliance with the rules on the books and updating existing guidance are immediate steps the agency can take on the path to developing a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures,” Herren Lee said.  

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