On February 24, acting chair of the U.S. Securities and Exchange Commission Allison Herren Lee, offered insight into the future direction of mandatory climate change disclosures and new ESG regulation, when she directed the Division of Corporation Finance to enhance its focus on climate related disclosure in public company filings.

The Commission provided guidance in 2010 to public companies regarding then existing disclosure requirements as they apply to climate change matters. For more than a decade we have assisted public companies and their advisors in matters of climate change and sustainability, including compliance with that 2010 SEC guidance.

It is anticipated that the new obligation to make disclosures with respect to climate change will expand greatly and that John Coates, who joined the SEC on February 1 as acting director of its Division of Corporation Finance will be at the center of those actions including to expand companies’ environmental, social, and governance disclosures (.. a subject he spoke and wrote on at his prior post at Harvard).

As part of its enhanced focus in this area, the SEC staff has now been directed by the acting chair to review the extent to which public companies address the topics identified in the 2010 guidance, assess compliance with disclosure obligations under the federal securities laws, engage with public companies on these issues, and absorb critical lessons on how the market is currently managing climate related risks. The staff “will use insights from that work to begin updating the 2010 guidance” to take into account developments in the last decade.

We know anecdotally that more than ever, investors are considering ESG including climate related issues when making their investment decisions. It is the SEC’s responsibility to ensure that investors have access to material information when making investment decisions and it is going to do that with a finger on the scale in favor of climate change by ensuring compliance with the rules on the books and updating existing guidance to produce consistent, comparable, and reliable climate related disclosures. Companies will need to adjust their behavior and be cautious to mitigate significant increased risk that will be associated with a new realm of disclosure laws.

While it is premature to speculate on specific enforceable disclosure rules including specific government written metrics or standards for ESG disclosures, it is clear such is the direction of the SEC.

Allison Herren Lee was appointed by President Trump to the SEC, unanimously confirmed by the U.S. Senate, and sworn into office on July 8, 2019. Ms. Lee was designated acting chair of the Commission by President Biden, on January 21, 2021.

All of this will all but certainly move forward promptly when President Biden’s SEC chairman nominee, Gary Gensler (.. whose confirmation hearing in scheduled for March 2, 2021) is seated.

We have and continue to assist public companies in matters of climate change and sustainability, including voluntary environmental reports, as well as the realm of emergent SEC disclosures and financial statement compliance.