These days it seems a U.S. official can mention climate change only when they’re outside the country. A case in point is William Hinman, who heads the SEC’s Division of Corporation Finance and addressed climate risk at a conference in London.
Mr. Hinman spoke about the disclosure of complex risks, and he mentioned climate risk only briefly at the end of his remarks. It was just a few sentences, but his words were the most anyone from the SEC has said in years on a topic of growing importance to investors.
However, nothing he said suggested the SEC was preparing to make climate disclosure a priority in its dealings with issuers.
Mr. Hinman affirmed the Commission’s 2010 interpretive release that described how existing disclosure requirements may apply to climate-related issues. Nine years on, it remains the SEC’s only guidance on the matter.
But while he didn’t break new ground, Mr. Hinman left no doubt that companies have an obligation under existing SEC rules to disclose material risks, including those related to climate change, and that the board of directors plays a critical role in overseeing them.
He also lauded the “evolutionary” efforts by market participants to sort out disclosure standards for a range of sustainability issues, saying that voluntary steps were preferable to standards imposed by regulators. But he didn’t mention one of the most significant voluntary initiatives, the Task Force on Climate-related Financial Disclosures (TCFD), whose 2017 report offered detailed guidance to help companies disclose climate-related risks and opportunities.
That omission was a disappointment. A little plug from the SEC would boost efforts to implement the TCFD recommendations, which have had broad support but little effect on company disclosures. We will have a clearer picture as companies file their annual financial reports in the coming weeks, but a surge in climate disclosures seems remote.
Investors are getting impatient about this state of affairs. The Council of Institutional Investors (CII), the trade association for large investment funds, recently released a letter to the Senate Banking Committee in which it lamented the poor state of corporate disclosures on environmental, social and governance (ESG) issues, saying:
To our great disappointment, CII has found disclosures on various ESG risks too often consist of boilerplate risk identification without adequate discussion of how those risks apply to the individual registrant. And most registrant’ disclosures relating to ESG risks provides no basis for investors to understand the scope of the risks or the likelihood of their coming to fruition.
The CII letter also welcomed Mr. Hinman’s remarks in London for reminding issuers of their obligation to disclose material climate risks, but it questioned whether the SEC’s guidance was reflected in the agency’s comment letters to issuers. That’s a polite but unmistakable jab at SEC enforcement efforts.
The bottom line is that SEC officials are saying the right things when it comes to climate risk disclosure, but there is little evidence that they are prodding SEC staff into acting. Until companies feel a little heat from the regulator, little will change.