Washington, D.C. — A new report from the Center for American Progress examines the ways in which the U.S. Securities and Exchange Commission (SEC) can use its existing reporting, accounting, and auditing rules to begin providing investors and capital markets with the information they seek about companies’ exposure to climate change-related risk.
Climate change is likely to cost the global financial system trillions of dollars. While some companies have begun disclosing their climate risk exposure in an ad hoc manner, investors lack the information they seek to make informed decisions about how to allocate capital away from climate risks. This report shows how the SEC can use long-standing rules, guidance, and enforcement mechanisms—including accounting standards and independent, third-party assurance—to ensure that companies begin providing robust disclosure of climate-related financial risks.
The report lays out four steps the SEC can take, under its existing authority, to address the climate crisis:
- Enforce existing accounting and related disclosure requirements to reflect the financial impacts of the climate crisis and the transition to a low-carbon economy.
- Update disclosure, through a staff accounting bulletin and other guidance and rulemaking, to spread identified best practices about material climate-related information across industries and markets.
- Leverage the significant power of the audit to build a solid bridge between climate-related risks and corporate financial reporting.
- Address the ways in which the existing U.S. accounting standards exacerbate systemic climate risks.
“The climate crisis presents one of the biggest threats to the global financial system in the coming years,” said Samantha Ross, former special counsel at the SEC, former chief of staff at the Public Company Accounting Oversight Board, and author of the report. “The SEC can use its existing reporting, accounting, and auditing rules and guidance to require U.S. companies to provide robust, actionable information that will begin to accurately account for the impact of the climate crisis on their operations. Acting SEC Chair Allison Herren Lee’s announcement that she has directed the SEC staff to enhance its focus on climate-related disclosure in public company filings is an enormous step in the right direction.”
Read the report: “The Role of Accounting and Auditing in Addressing Climate Change” by Samantha Ross
For more information on this topic or to speak with an expert, contact Julia Cusick at [email protected].