Washington, D.C. – A new report from the Center for American Progress calls on the U.S. Securities and Exchange Commission (SEC) to require that publicly traded companies disclose their exposure to climate change-related risk.
Climate change poses a huge threat to companies, investors, and the global financial system—both because of the risks associated with extreme weather events and because climate change will necessarily require the global economy to transition away from fossil fuels and toward new sources of energy. While the precise economic impact of the climate crisis remains uncertain, left unchecked, climate change will expose investors in many companies to a wide range of losses and harms, is predicted to have extraordinarily negative long-term macroeconomic impacts overall, and could precipitate a systemic financial crisis deeper and longer lasting than the Great Recession.
While many companies have begun to voluntarily disclose their exposure to climate risk, doing so is not mandatory or standardized, making it impossible to assess risk across companies or ascertain systemic risk. In “The SEC’s Time To Act,” authors Andy Green and Alexandra Thornton shine a spotlight on the clear need for the SEC to address climate risk and other environmental, social, and governance disclosures because its existing statutory tools already establish both the authority and the imperative to protect investors and the public by developing and enforcing a common set of disclosures. Specifically, the report recommends that the SEC take the following steps:
- Enforce existing guidelines and rules for disclosure of climate-related risks.
- Require specific public company climate-related disclosures and analysis, including disclosures of direct and indirect greenhouse gas emissions; require companies to disclose transition plans, targets, and sectoral adjustment strategies; and close the loopholes that allow larger companies to avoid public market transparency.
- Devote special attention to the financial sector in order to capture the systemic and investor protection risks of climate as it relates to the financial system by requiring financial institutions to disclose the greenhouse gas emissions they finance and underwrite through their loans, insurance policies, and investment funds.
- Take an all-of-agency approach to climate.
“Climate change is already transforming the world we live in and, with it, the economy. And investors are increasingly demanding that companies disclose their exposure to climate risk,” said Alexandra Thornton, senior director of Tax Policy at the Center for American Progress and co-author of the report. “While many companies have begun disclosing their climate exposure in an ad hoc manner, investors need information that is comparable across companies and reliable. Regulators also need standardized information to understand the systemic risk posed by climate change. The SEC is uniquely positioned to provide a common set of disclosures and, working with other agencies and experts, standardized data and methodologies to be used in those disclosures. This would allow markets, investors, and the government to understand and begin to address the economic fallout of climate change.”
“It’s past time that the SEC confront the clear threat that climate change poses to the U.S. financial system, retirement security, and investor protection,” said Andy Green, senior fellow for Economic Policy at the Center for American Progress and co-author of the report. “Investors and the public are demanding to know whether and how companies are getting to net-zero emissions—and for the financial system, net-zero financed emissions—by 2050. The world confronts a narrow window to avert a catastrophic climate disaster. If there were ever a moment for the SEC to be true to its Great Depression-era mission and avoid a repeat of its pre-2008 failures, this is it.”
Read the report: “The SEC’s Time To Act: A New Strategy for Advancing U.S. Corporate and Financial Sector Climate Disclosures” by Alexandra Thornton and Andy Green
For more information or to speak to an expert, please contact Julia Cusick at [email protected].