Risk Management

Former SEC Chief Thinks Commission Could Boost Climate Focus

But investor demand for environmental information will drive companies to disclose it, Mary Schapiro says.
David KatzMay 12, 2017

Former Securities and Exchange Commission chief Mary Schapiro thinks the SEC could be doing more to push companies to disclose their climate change risks.

Mary Schapiro

Mary Schapiro

Following the release of the SEC’s 2010 interpretive guidance on climate change disclosures, the commission “aggressively commented on [corporate] filings for several years,” says Schapiro, who was SEC chair from 2009 through 2012.

“I think the agency has done less commenting on registrants’ filings in the last several years,” Schapiro, now a vice chair of the Sustainability Accounting Standards Board, said in a recent interview. (For a detailed look at SASB and the changing nature of environmental, social, and governance disclosure see the upcoming June issue of CFO.)

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The current commissioners could focus on climate change by moving forcefully to comment on the adequacy of environmental disclosures in 10-Ks “without the SEC having to write any new requirements, interpretations, or guidances,” she says.

The requirements for material disclosure in financial statements, including rules mandating reporting of material information regarding climate change, “already exist, and through the comment process, the SEC could be encouraging more complete  disclosure,” according to Schapiro, who also serves as member of the G20 task force on climate-related disclosures.

Citing existing federal securities laws, the 2010 SEC interpretation states that “information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision, or, put another way, if the information would alter the total mix of available information.”

The interpretation says that if a company’s environmental compliance and legal costs are material, they should be disclosed in the Management’s Disclosure and Analysis and Risk Factors sections of 10-Ks.

To be sure, times have changed since 2010 regarding governmental sustainability policies. For example, “cap and trade” legislation regarding carbon emissions was being discussed seven years ago, and the Environmental Protection Agency comes across in the SEC interpretation as a significant regulator for corporations to consider when they report on climate change risk in their financials. By contrast, Scientific American reported this week that the EPA has begun removing references to climate change from its website.

To what extent will the Trump administration’s policy toward climate change derail efforts by SASB and other organizations to push companies to disclose more environmental information about climate change in their financials?

Schapiro says she isn’t sure that the administration’s changes in environmental regulatory policy will have much of an effect because investors are increasingly demanding information about sustainability. An indication of that is companies’ expression of “fatigue with having to fill out hundreds and hundreds of questions on questionnaires from investors asking for this information,” she notes.

“I think there are market forces at work here, and I think the market will continue to drive the developments in this area” regardless of the political environment, Schapiro says.