Ceres, a leading sustainability nonprofit representing institutional investors with over $11 trillion in assets under management, is calling again on the SEC and registrants to do more to improve climate change disclosure in SEC filings. Dissatisfied with the SEC’s perceived lack of follow-through on its own February 2010 Climate Change Disclosure Guidance, Ceres released a report earlier this month, Cool Response: The SEC & Corporate Climate Change Reporting – SEC Climate Guidance & S&P 500 Reporting – 2010 to 2013, directing the SEC to prioritize climate change disclosure by issuing more comment letters to companies with “inadequate” disclosure. Ceres cites the SEC’s three climate change comments from 2012 to 2013 out of the thousands it issued each year as evidence of the SEC’s poor enforcement of its 2010 disclosure guidance, which Ceres spent several years petitioning the SEC to adopt. As part of this requested enhanced disclosure review, Ceres recommends that the SEC (i) compare companies’ SEC disclosure against their typically more fulsome disclosure in their voluntary climate change reports, (ii) create a federal interagency working group focused on climate-related risks and opportunities and (iii), probably its most aspirational recommendation, create a task force focused on reviewing climate change disclosure as the SEC did when it changed executive compensation disclosure rules in 2006.
Lest companies think the SEC is Ceres’s only target, the report contains various recommendations to companies on climate change disclosure requirements, including that companies should quantify and disclose their greenhouse gas emissions where possible and, in a stroke of securities law subtlety, that companies should bear in mind that climate risk is now (at least in Ceres’ view) a major concern of the “reasonable investor” (whose needs dictate what is “material” under U.S. securities law.)
Potential Impact/SEC Reaction
It is unlikely the report alone will spur into action the SEC, which has not commented publicly on this report, given what it appears to be the SEC’s current mindset. For example, various SEC commissioners, in particular SEC Chair White and Commissioners Gallagher and Piwowar (each of whom joined after the 2010 climate change guidance was published), have voiced on numerous occasions significant frustration with certain politically driven and special interest disclosure, calling them an inappropriate use of SEC resources and, in the case of the Resource Extraction and Conflict Minerals Rules, “distractions” from the agency’s mission. Commissioner Gallagher and Keith Higgins, the head of the SEC’s Division of Corporation Finance (the division that issues those very comment letters which Ceres is seeking) have warned in various speeches of “information overload” and the obfuscatory effect of too much disclosure. In particular, Ceres’s suggestion that issuers must disclose their greenhouse gas data could run counter to this concern. Most importantly, even if the SEC were so inclined, it is unlikely, as a practical matter, that the SEC could prioritize climate change disclosure given its current burdensome mandate to issue over 60 remaining rules and reports under the Dodd-Frank Act. Finally, Chair White, in a recent speech discussing whether more line item disclosures versus a more “materiality-based” disclosure regime would be preferred, seemed to weigh in the direction of the latter, stating that it is impossible to provide every item of information that might be of interest of some investors, but not to others.