- I. Introduction
- II. Background of Climate Risk Disclosures
- III. The Climate Risk Disclosure Act of 2019
- IV. How Congress and the SEC Can Encourage More Climate Risk Disclosures Without the Climate Risk Disclosure Act
- V. Conclusion
“Increasing transparency makes markets more efficient, and economies more stable and resilient.”
In September 2019, sixteen-year-old Greta Thunberg addressed the United Nations Climate Action Summit in New York City, pointedly asserting to the attending delegates: “All you can talk about is money and fairy tales of eternal economic growth.” Indeed, climate change worries many people, including an increasing number of young people. However, many regulators are starting to consider the inherent risks climate change poses to companies and the global economy. The U.S. Securities and Exchange Commission (SEC) is one such regulator.
The SEC issues rules that are designed to broker trust in investment markets. To achieve this trust, the SEC “requires . . . disclos[ure of] meaningful financial and other information to the public . . . for all investors to use to judge for themselves whether to buy, sell, or hold a particular security.” In particular, a company seeking public investment must be honest about the nature of its business, the securities it seeks to sell, and the potential risks of investing in the company. The SEC carries out its mandate in part by requiring annual Form 10-K disclosures from publicly held companies, which give an overview of a company’s business and financial condition. A Form 10-K report requires a company to disclose material risks and information to investors. Courts have consistently used the “reasonable shareholder” standard in determining materiality: whether or not a reasonable shareholder would consider the disclosure important in making decisions. However, a company is under no obligation to disclose everything; it must decide whether a given fact comports with the reasonable shareholder standard and, if so, whether to disclose it. But once a company chooses to disclose information, it must do so accurately and completely or face possible securities fraud violations.
Beginning in the late 1960s and throughout the early 1970s, shareholders of public companies began asking the SEC to require nonfinancial environmental and social disclosures from companies. Eventually the SEC considered and ultimately denied those calls for mandatory environmental and social reporting in a notice published in 1975. Nevertheless, environment, social, and governance (ESG) reporting, as such disclosures are now called, has increased significantly over the last two decades. One aspect of ESG reporting deals solely with risks related to climate change. Despite the upward trend in ESG reporting, however, a palsy 23.7% of companies in the S&P 500 mentioned climate change in their Form 10-Ks in 2008, and that same year only 5.5% of the companies identified at least one climate change risk and communicated a strategy for mitigating that risk. In response to the heightened interest in climate change from the public, the SEC released interpretative guidance in 2010 on how climate risks could compel a company to disclose such risks if investors could find them material. The guidance focused on Items 101, 103, 303, and 503(c) of Regulation S-K. Despite investors’ initial welcoming of the guidance, relatively few issuers adopted them, and SEC enforcement was brief. The few climate risk disclosures promulgated under the SEC guidance are voluntary and far from uniform, precluding investors from comparing investments based on such disclosures.
After nearly a decade of increasing silence and inaction from the SEC on climate risk disclosures, Senator Elizabeth Warren and House Representative Sean Casten introduced the Climate Risk Disclosure Act (CRDA) in July 2019. The CRDA would require companies to “disclose critical information about their exposure to climate-related risks” as enforced by SEC rulemaking. However, some critics have argued that the CRDA empowers the SEC to act beyond its traditional authority and expertise, particularly by placing a social cost on carbon, when no official carbon pricing exists yet at the federal level.
This Comment will survey the current landscape of guidance and requirements related to climate risk disclosures in the United States, including the CRDA and potentially applicable rules already proposed by the SEC. By analyzing the bill’s legislative history, it will argue the CRDA delegates power to the SEC in excess of its current statutory authority to only require companies to disclose material risks with financial impacts, particularly by the agency determining the social cost of carbon. Finally, this Comment notes that climate change disclosure mandates remain politically polarizing in the United States. Therefore, a shift in political power will probably be required to implement the CRDA or future iterations of it.
Part II will define climate risk disclosures, explain how they mitigate the global economy’s negative impacts on climate change, and discuss the largely industry-led and international efforts to standardize climate risk disclosures, emphasizing the Task Force on Climate-Related Financial Disclosures. Part II will also expand on the SEC’s 2010 guidance on climate risk disclosures and discuss why the guidance falls short in attracting the level of disclosure needed for meaningful investor choices.
At the heart of this Comment, Part III will examine the Climate Risk Disclosure Act, including its legislative history and the portions of the bill that would satisfy current SEC regulations on materiality. This Part concludes that the CRDA would ultimately be ineffective in mandating climate risk disclosure because the bill represents too significant of a leap from the status quo of the SEC’s principles-based approach in requiring disclosure. Moreover, the SEC is ill-equipped to determine the social cost of carbon, which would form the basis of carbon pricing calculations by issuers in adhering to the CRDA.
In conclusion, Part IV proposes two avenues for increasing climate risk disclosure adoption without passing the CRDA in its current form. First, the SEC could consider the comments submitted in response to its 2019 Proposed Rule on Modernizing Regulation S-K Items 101, 103, and 105. These comments address ways to incorporate climate risk disclosures in Regulation S-K’s modernization process by maintaining both prescriptive and principles-based disclosure requirements for issuers, coupled with existing guidance. Second, Congress could consider a less-drastic version of the bill without an SEC-created carbon pricing mechanism and keeping with the agency’s historical materiality benchmark. In so doing, the SEC can incrementally encourage adoption of voluntary disclosure frameworks.
II. Background of Climate Risk Disclosures
A. The Current Climate Change Reality
The United Nations’ Intergovernmental Panel on Climate Change (IPCC) produced a special report in 2018 analyzing the pathways to limit global temperature rise to 1.5°C and the potential results of that achievement, compared to a 2°C global temperature rise. The IPCC has also reaffirmed its previously set carbon budget—the amount of carbon dioxide the globe can produce before a probable rise in temperature—which limited carbon emissions to 580 gigatons of carbon dioxide (GtCO2) for a 50% chance and 420 GtCO2 for a 66% chance to stay within the 1.5°C temperature rise threshold. In addition, the IPCC’s 2018 report discusses climate change’s impacts to the global economy, particularly on sustainable development and poverty eradication. Although any global temperature rise will have negative effects on livelihoods, maintaining a 1.5°C increase could reduce the number of people exposed to climate risks by several million people. Therefore, failing to meet global climate change targets poses an acute threat to economic prosperity and stability.
B. Climate Change, Divestment, and Risk Disclosure Frameworks
While climate change undoubtedly impacts the global economy, many have argued the reverse is also true: the global economy impacts climate change. This relationship has catalyzed the development of fossil fuel divestment campaigns as a way to address social qualms. To date, more than 1,200 institutions have pledged to divest approximately $14.14 trillion in fossil fuel investments. While impacting climate change is one incentive for institutions to divest from fossil fuels, institutions are also incentivized to use divestment as a way to avoid investing in stranded assets, or “assets that have suffered from unanticipated or premature write-downs, devaluations, or conversion to liabilities.” Some scholars have posited that overreliance on potentially stranded assets will result in a “carbon bubble.” As a result, many divestment strategies moved beyond the climate change theme, to focus on how a wider range of environment-related factors could be used to strand assets. Because the risk of a carbon bubble is high, shareholders require that companies provide climate risk disclosures so that they can make prudent investments.
In September 2015, Mark Carney, Governor of the Bank of England and Chairman of the Financial Stability Board, gave a speech in which he called for an industry-led Climate Disclosure Task Force. Mr. Carney urged central banks to create voluntary standards for companies that produce or emit carbon, which would reveal the “likely future cost of doing business, paying for emissions, changing processes to avoid those charges, and tighter regulation.” Three months later, the Financial Stability Board officially formed the Task Force on Climate-Related Financial Disclosures (TCFD or Task Force), which finalized eleven recommendations in 2017 for companies to improve their climate risk disclosures through existing reporting mechanisms. These recommendations pertain to four categories: (1) corporate governance related to climate risks and opportunities; (2) organizational strategy materially impacted by climate risks and opportunities; (3) risk management approaches to climate risks; and (4) metrics and targets used to assess material impacts of climate risks and opportunities. In developing its recommendations and principles, TCFD considered existing mandatory reporting frameworks and other voluntary frameworks. Although TCFD’s recommended climate risk disclosures are unprecedented in their detail, they are completely voluntary and rely on organizations to self-report.
As a growing number of companies are adopting the TCFD recommendations, national regulators are considering how they fit with existing securities laws. In 2019, the TCFD published a status report in which a survey of 198 climate risk disclosure preparers showed that climate-related financial risk disclosures are more frequent in their financial filings. The TCFD aligns its recommendations on the materiality standard found in most G20 countries, including the United States. Namely, the Task Force views its recommendations as compatible with the traditional materiality approaches, even when affected public companies determine whether a disclosure is material. To promote continued adoption of a risk disclosure framework such as the TCFD, implementation of the recommendations into country-specific regulations remains a work in process.
New multinational coalitions have led the way in implementing TCFD’s recommendations. In April 2019, the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) issued six recommendations directed to financial institutions, supervisors, and central banks, one of which deals with climate risk disclosures. NGFS surveyed its thirty-four members’ jurisdictions in assessing implementation of TCFD’s disclosures and found three distinct approaches: (1) nonmandatory; (2) “comply or explain”; and (3) mandatory. Although more companies have voluntarily disclosed under the TCFD recommendations, the resulting disclosures are often not comparable between similar companies because many companies use boilerplate language or differing metrics. The TCFD recommendations complement existing voluntary corporate mechanisms for climate reporting, including CDP (formerly, the Carbon Disclosure Project), the Global Reporting Initiative (GRI), and the Sustainability Accountability Standards Board (SASB). In sum, compliance with current climate risk disclosure standards remains voluntary. The standards are continually developing with input from industry and banking institutions, both of which have recently started contemplating how they can fit into national standards.
C. Climate Risk Disclosure Filings in the United States via Regulation S-K
The reasonable shareholder standard determines which financial disclosures public companies must make in the United States, but some public issuers have joined the TCFD movement and voluntarily disclosed more-detailed climate risks to their organizations. As of July 2020, 194 U.S.-based organizations have pledged support for the TCFD. Despite the TCFD’s growing implementation, the SEC only requires material risks in corporate disclosures that a reasonable shareholder would find important in making investment decisions. Regulation S-K primarily governs how to disclose such material risks in its annual Form 10-K filing.
The SEC routinely issues interpretative guidance and letters to help clarify disclosure requirements. In 2010, the Agency issued its sole guidance on climate change (SEC Climate Change Disclosure Guidance), which allows public corporations to determine for themselves whether a climate risk materially impacts their bottom line. The SEC Climate Change Disclosure Guidance focuses on material risks stemming from (1) legislation and regulation related to climate change; (2) international treaties and accords regarding climate change; (3) indirect consequences of climate change regulation and opportunities or risks associated with business trends; and (4) physical impacts from climate change such as severe weather and rising sea levels. These four categories could affect disclosure requirements under Items 101, 103, 303, and 503(c) of Regulation S-K.
The SEC Climate Disclosure Guidance provides several examples of how climate change could implicate each of the mentioned items of Regulation S-K: (1) Item 101, Description of Business; (2) Item 103, Legal Proceedings; (3) Item 303, Management’s Discussion and Analysis of Financial Condition and Results of Operation; and (4) Item 503(c), Risk Factors.
Item 101, Description of Business, requires an issuer “to describe its business and that of its subsidiaries.” Issuers must disclose materially significant characteristics of any segment of their business. Under Item 101(c)(1)(xii), companies must disclose material costs to comply with environmental regulation. If business trends or risks related to climate change are significant enough to impact a particular business, then the registrant may have to disclose them in Item 101.
Item 103, Legal Proceedings, requires an issuer to describe pending material litigation, including environmental litigation, to which it is a party. Climate change litigation has surged over recent years, with more than 1,000 cases identified in the United States as of May 2019, accounting for more than three-quarters of cases identified globally. Under the SEC’s guidance, companies may have to disclose pending climate change litigation under Item 103, assuming materiality to the business.
Item 303, Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A), seeks to achieve three objectives: (1) give investors a narrative of a company’s financial statements through management’s perspective; (2) contextualize how investors can analyze a company’s financial statements; and (3) provide the quality and variability of a company’s earnings and cash flow. The MD&A allows investors to accurately predict how past performance indicates future performance. Under the SEC’s guidance, a company must disclose pending legislation, regulation, or lawsuits related to climate change that materially impact how to utilize a company’s financial information in the MD&A section.
Item 503(c), Risk Factors, requires a company to disclose the most significant factors that make investment risky and specify how they apply to the particular company. Companies may have to disclose pending material climate change-related legislation and regulation in this section as well, especially if their industry is particularly sensitive to such regulation. For example, the SEC Climate Change Disclosure Guidance compared registrants in the energy industry as facing different risks than those in the transportation industry. The company DowDuPont, Inc., one of the largest chemical and agricultural manufacturers in the world, included an example of climate change-related risk factors in its 2018 Form 10-K, which could potentially satisfy Item 503(c). The company referenced historical DuPont’s 12.7% reduction in greenhouse gas emissions and 14.9% decrease in nonrenewable energy intensity since 2010. It also discussed historical Dow’s concern with regulatory matters, such as “cap and trade schemes; increased greenhouse gas (GHG) limits; and taxes on GHG emissions, fuel and energy” and physical climate parameters, such as the “long-term implications of changing climate parameters on water availability, plant siting issues, and impacts and opportunities for products.”
Although the SEC Climate Change Disclosure Guidance was unique in being the SEC’s first reference in climate change, the agency largely ignored its implementation. In 2014, Ceres, a nonprofit organization that advocates for sustainable investment, published a report surveying the corporate response to the guidance and the SEC’s decrease in attention to compliance within a few years of implementation. SEC comment letters are important in ensuring compliance with regulations, including guidelines that may apply to a particular company. In 2010, shortly after issuing its climate change disclosure guidance, the SEC issued thirty-eight comment letters. The agency subsequently issued eleven, three, and zero comment letters in 2011, 2012, and 2013 respectively. Of the comment letters over that four-year period, only nine specifically requested that the company consider the SEC’s climate guidance. But of the twenty companies that responded to the agency’s comment letters, only three companies provided “diligent” responses. Overall, the SEC’s comment letters were limited in scope, issued to few firms, and primarily focused on smaller firms that engaged in lower-risk activities that could trigger climate risk disclosures. This inaction effectively renders the climate change guidance a symbolic gesture because particularly vulnerable companies see few legal benefits in disclosing fully.
III. The Climate Risk Disclosure Act of 2019
A. Legislative History and Current Status
On July 5, 2019, nearly a decade after the SEC Climate Change Disclosure Guidance, House Representative Sean Casten introduced the Climate Risk Disclosure Act. Although the CRDA’s ambitious directives to the SEC to consider climate risks somewhat align with the TCFD recommendations, this Part will argue that the bill ultimately directs the SEC to issue rules that exceed its traditional authority to require disclosure of material risks that affect a company’s bottom line. In addition, this Part will argue that the TCFD recommendations were primarily created to be voluntarily adopted by companies, not necessarily to be incorporated verbatim by law by countries for all public companies. Finally, this Part will argue that, although the CRDA has yet to be presented for a House vote and lacks Republican sponsors, the bill sets a precedent for future legislation related to impacting climate change and a modified version of it could be more effective.
On July 10, 2019, Senator Elizabeth Warren introduced a companion bill to the CRDA in the Senate. That same day, Mindy Lubber and Paul Atkins spoke at a House hearing on the CRDA to discuss the text of proposed legislation including the ESG Disclosure Simplification Act, the Shareholder Protection Act, the Corporate Human Rights Risk Assessment, Prevention, and Mitigation Act, and a bill requiring disclosure of corporate tax paid in a particular period. The House of Representatives amended its bill in committee about two weeks after introduction, while the Senate version remains unchanged and no action has occurred since introduction.
B. Key Provisions of the Climate Risk Disclosure Act Challenge the SEC’s Traditional Approach to Only Require Material Disclosures
By mandating disclosures, the CRDA would represent a new frontier of regulation for the SEC, particularly when comparing it to the agency’s hands-off approach from its 2010 guidance. The CRDA directs the SEC to consult with “appropriate climate principals” to issue rules within two years mandating climate risk disclosures. These disclosures include a standards-based reporting of (1) direct and indirect greenhouse gas emissions; (2) the total amount of fossil fuel-related assets; (3) the social cost of conducting business as usual versus taking aggressive action to mitigate the impacts of global warming; and (4) specific risk management actions taken to address climate risks. The CRDA also purports to tailor its disclosure requirements by industry. Even if the SEC fails to finalize rules mandating disclosure within two years, the CRDA still requires public companies to disclose climate risks in annual reports, the format of which they can satisfy by following the TCFD recommendations.
Perhaps most significantly, the CRDA directs additional requirements on public companies that engage in “commercial development of fossil fuels.” These requirements include, inter alia: (1) direct and indirect GHG emissions attributable to certain fossil fuel recovery operations; (2) a description of how future carbon pricing schemes, including the social cost of carbon, affect fossil fuel reserve levels; (3) an estimate of potential direct and indirect GHG emissions linked to hydrocarbon reserves; (4) the company’s methodology in detecting and mitigating methane leaks; (5) the amount of freshwater used in fossil fuel operations; and (6) the percentage of used freshwater that comes from potentially freshwater-scarce areas. These disclosure requirements would result in the first industry-specific rules to apply to oil and gas companies since the SEC’s 2009 rule regarding Modernization of Oil & Gas Reporting, which made no mention of climate change whatsoever. The CRDA’s operative provisions thus envision a transformative role for the SEC in addressing climate change by transferring decision-making power from issuers to the agency. In sum, the CRDA would determine in advance which climate risks are material, which would therefore require companies, particularly oil and gas producers (OGP), to disclose them in annual filings.
C. The SEC Lacks the Expertise to Determine the Social Cost of Carbon
The SEC is a securities market regulator, not an environmental agency with scientists and climatologists. Therefore, it lacks the expertise to independently and accurately determine the social cost of carbon (SC-CO2) as the CRDA dictates. The SC-CO2 estimates the socioeconomic harm of releasing a certain amount of carbon dioxide into the atmosphere. Federal agencies have used SC-CO2 calculations in cost-benefit analyses to compare the economic costs of carbon dioxide emissions as a result of a policy to the policy’s economic benefits. When calculating SC-CO2, the discount rate used accounts for expected inflation in the value of a dollar. A higher discount rate generally means that society is not willing to pay more today to account for future harms. Based in part on the large size of the U.S. economy and the United States’ high carbon dioxide emissions, scientists estimate that the United States is second only to India for having the highest SC-CO2. On the other hand, countries like Russia, the United Kingdom, and Canada stand to have negative SC-CO2 because of the anticipated economic benefits from a warmer climate.
The Climate Risk Disclosure Act mentions the social cost of carbon on four different occasions. It defines the term social cost as “the monetized present value, discounted at a 3% or lower discount rate, in dollars, per metric ton of carbon dioxide (or carbon dioxide equivalent), of the net global costs over 300 years caused by the emission of carbon dioxide (or carbon dioxide equivalent, as applicable)” resulting from a variety of climate change impacts on society. In its operative section, the CRDA directs the SEC to establish a minimum SC-CO2 for issuers to use in their carbon emission cost statements but fails to provide any standards on which the agency is supposed to base its calculations besides a 3% or lower discount rate over a 300-year span. The CRDA simply directs that “the Commission shall make publicly available, including all assumptions and methods used in the calculations,” whichever the agency happens to choose.
Although multiple groups have attempted to calculate the social cost of carbon, estimates can vary significantly based on the variables considered in the calculation. Estimates of the SC-CO2 now vary considerably between agencies due to the President’s Executive Order No. 13,783. That particular executive order, issued on March 28, 2017, disbanded the Interagency Working Group on Social Cost of Greenhouse Gases and stated that the group’s estimates did not represent government policy. The executive order removed a uniform methodology for calculating the SC-CO2. In practice, however, federal agencies mostly adhere to the Interagency Working Group’s methodology except by limiting economic damages to only the United States and employing higher discount rates. The CRDA would supplant the current SC-CO2 calculation with its own “net global costs over 300 years”—using a low 3% discount rate and in a global, rather than domestic, context. This methodology would yield a very high SC-CO2 based on current estimates, and the agency would have to extrapolate the estimate based on multiple data points 300 years in the future. In addition, by requiring consultation with climate change principals, the proponents of the CRDA may actually be disappointed with the SC-CO2 that the SEC determines, especially under the current administration. In sum, calculations are highly uncertain, and the SEC would have to cooperate with one or more agencies to calculate the SC-CO2, without a uniform approach on which to depend.
IV. How Congress and the SEC Can Encourage More Climate Risk Disclosures Without the Climate Risk Disclosure Act
A. The Climate Risk Disclosure Act Conflicts with the SEC’s Campaign for More Principles-Based Disclosures with its Proposed Regulation S-K Modernization Rule
Over the last few years, the SEC has proposed and finalized rules that expand principles-based disclosures, rather than prescriptive disclosures. The Climate Risk Disclosure Act would, however, represent a significant shift from the Agency’s approach. The SEC defines principles-based disclosures as “articulat[ing] an objective and look[ing] to management to exercise judgment in satisfying that objective by providing appropriate disclosure when necessary.” Item 303, Item Management’s Discussion and Analysis, and Item 503(c), Risk Factors, of Form 10-K are clear examples of platforms for principles-based disclosures because management retains the flexibility to choose material disclosures. Supporters of principles-based disclosures cite their ability to adapt to market conditions; what a company finds material and necessary for disclosure one year could be irrelevant the following year. Prescriptive disclosures, on the other hand, stipulate what kinds of information certain industries should disclose, often through “bright-line, quantitative thresholds” that do not depend on management discretion. Item 103, Legal Proceedings, elicits prescriptive disclosures because it requires specific categories and details of legal proceedings, such as pending environmental lawsuits. Supporters of prescriptive disclosures contend that they are more comparable, consistent, and predictable, which investors find helpful in choosing between companies.
In August 2019, the SEC proposed a rule to modernize Regulation S-K Items 101, 103, and 105 (S-K Modernization Proposed Rule). The S-K Modernization Proposed Rule emerges from a multi-year evaluation, conducted as a result of a study on Regulation S-K.
It proposed three changes. First, the proposed rule would revise Item 101(a), General Business Description, by providing a noninclusive list of examples of information for a registrant to disclose, allow the registrant to hyperlink to previous general business descriptions, and only add material changes. Second, the proposed rule would revise Item 101(c), Narrative Business Description, by adding additional topic examples, including human capital resources, and focusing disclosure on material government regulations instead of only environmental compliance. Third, the proposed rule would revise Item 105, Risk Factors, by altering the principles-based portion of the section to revise the standard from “most significant” risk factors to “material” risk factors.
The proposed rule received over ninety unique comments by the end of 2019. Some commenters, however, urged for more principles-based disclosures, particularly with Item 103, Legal Proceedings. Many commenters, particularly those by investor groups, lamented the agency’s move to more principles-based disclosures and the rule’s failure to address climate risk disclosures. Although the S-K Modernization Proposed Rule failed to explicitly ask for comments relating to climate risk disclosure, the SEC should still recognize and consider the number of comments calling for such disclosures. In fact, two of the agency’s five commissioners noted the proposed rule’s omission. They argued that because companies can increasingly measure climate risk accurately, the agency should consider including climate risk in its expanded principles-based list of topics to discuss in Item 101, Description of Business.
To resolve this conflict, the SEC should require that issuers disclose more than boilerplate language regarding climate risk and cite specific metrics that may be material to financial performance, similar to what the Sustainability Accountability Standards Board argued in its comment letter relating to human capital disclosures. At the same time, an increasing number of companies are embracing the Task Force on Climate-Related Financial Disclosure’s recommendations. Therefore, including climate risk disclosures in the agency’s principles-based approach could further legitimize disclosure and incrementally encourage disclosure in a manner appropriate to each company.
B. Recommendations for Future Climate Risk Disclosure Legislation
In its current form, the Climate Risk Disclosure Act lacks political backing to advance climate risk disclosure regulations, having sat in limbo in the House and Senate since 2019. Assuming a change in political composition, Congress could pass a modified climate risk disclosure law that combines both principles-based and prescriptive disclosures. To accomplish this, first, Congress should work with the Environmental Protection Agency, the Federal Energy Regulatory Commission, and other federal agencies to reinstitute unified and consistent federal standards to determine the social cost of carbon, with significant input from scientists and economists. Second, a modified climate risk disclosure law should not specifically target registrants engaging in commercial fossil fuel development because prescriptive disclosures could naturally force more disclosure from fossil fuel companies, especially with consistent industry standards. Third, and perhaps most significantly, a modified climate risk disclosure law should continually reference and rely on the materiality standard, which is almost absent in the CRDA. Without basing the CRDA on materiality, registrants could feel they have to disclose just to fulfill a social agenda, when in fact they either are unaware of or disagree with many climate risks being material. If Congress passes a future iteration of the bill, Congress should consider the SEC’s longstanding and continually expanding principles-based disclosure approach in linking materiality, on which many companies will have relied.
Even if the Climate Risk Disclosure Act or a future iteration fails to pass, major investors have already indicated their increased willingness to exit investments with high climate risk, pressuring other investors and companies to follow suit. On January 14, 2020, Larry Fink, Chairman and CEO of BlackRock, Inc., the world’s largest asset manager with over $7 trillion invested, dedicated the company’s annual letter to CEOs to climate risk and its reshaping of finance. That same day, BlackRock sold $500 million in coal investments. Specifically, BlackRock asked its clients to “(1) publish a disclosure in line with industry-specific SASB guidelines by year-end . . . and (2) disclose climate-related risks in line with the TCFD’s recommendations.” BlackRock committed to disclosing climate risks in line with TCFD recommendations by the end of 2020. It remains unclear, however, the extent to which BlackRock and similar investors support direct legislation on climate risk disclosure.
In the immediate future, the Task Force on Climate-Related Financial Disclosure recommendations and similar frameworks will probably remain the most important standards for climate risk disclosures. The TCFD was designed to continually improve and standardize disclosures with support from central banks, international financial organizations, and companies. This Comment explains climate change’s connection to the economy, focusing on important risks that could affect a reasonable shareholder’s decisions and, therefore, require disclosure to the Securities and Exchange Commission. By discussing the emerging TCFD recommendations, this Comment emphasizes that global markets drive both the recognition of climate risks and the standards that govern disclosure of them. Although the voluntary disclosure frameworks may be relatively new, these market forces have existed for quite some time, accelerating in conjunction with the global recognition of climate change’s existence and impacts. These same forces led to the United States’ sole SEC guidance on climate risk disclosure. This guidance, although novel when finalized, failed to substantially change unique risk disclosures. Recognizing the value of incremental change in this space, this Comment applauds the ambitions of the Climate Risk Disclosure Act but questions the Act’s viability in Congress’s polarizing political environment and the Act’s lack of harmony with the SEC current disclosure simplification trends.
The Climate Risk Disclosure Act also assumes expertise that the SEC does not traditionally have, and Congress should delegate such expertise to appropriate agencies first. This Comment concludes that a future version of the CRDA will probably only succeed with the support of certain major agencies and by taking into account the SEC’s principles-based approach, as opposed to just prescriptive disclosures directed toward specific industries. In so doing, the SEC’s future climate change-related rules and guidance can adhere to the agency’s longstanding materiality standard, while considering TCFD recommendations. Regardless, with increasing pressure for standardized disclosures from investors such as BlackRock, the private sector appears more likely to adopt the TCFD recommendations in the near future. This cooperation could also allow time for Congress to work toward a bipartisan framework for climate risk disclosures going forward.
Michael R. Bloomberg, Task Force on Climate-Related Fin. Disclosures, htt
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Id. at 34–36 (noting the impacts of climate change on young people’s physical health, mental health, social networks, and educational opportunities).
See Pierpaolo Grippa et al., The Economics of Climate: Climate Change and Financial Risk, Fin. & Dev., Dec. 2019, at 26, 26, https://www.imf.org/external/pubs/ft/fandd/2019/12/pdf/fd1219.pdf [https://perma.cc/XUN7-X6US]; Leora Falk & Yin Wilczek, Split SEC Backs Guidance for Companies To Disclose Climate Change-Related Risks, Bloomberg L. (Jan. 28, 2010, 11:00 PM), https://news.bloomberglaw.com/bulkprint?includeArticleIds=00000160-94ce-dc0f-a5f0-d6ff03dc0000&order=PostedDate&q uery=split [https://perma.cc/S8RU-S2MG] (discussing former SEC Chairman Mary Schapiro’s speech on the agency’s new interpretative guidance).
Luis A. Aguilar, Comm’r, U.S. Sec. & Exch. Comm’n, Speech by SEC Commissioner: Responding to Investors’ Requests for SEC Guidance on Disclosures of Risks Related to Climate Change (Jan. 27, 2010) (transcript available at https://www.sec.gov/news/speech/2010/spch012710laa-climate.htm [https://perma.cc/QCF8-TJ3B]).
Kara M. Stein, Comm’r, U.S. Sec. & Exch. Comm’n, Address at Girls Who Invest Summer Intensive Program (June 7, 2018) (transcript available at https://www.sec.gov/news/speech/speech-stein-060718 [https://perma.cc/84JS-QL4C]).
Form 10-K, Sec. & Exch. Comm’n, https://www.sec.gov/fast-answers/answers-form10khtm.html [https://perma.cc/2YRD-MK74] (June 26, 2009).
Id.; see also 17 C.F.R. § 240.10b–3 (2019) (detailing the potential consequences of insider trading with nonpublic material information).
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318, 1333 (2015) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)); see also 17 C.F.R. § 240.12b–5 (2019) (defining “material” in the context of protections against defrauding investors).
Paul Rissman & Diana Kearny, Rise of the Shadow ESG Regulators: Investment Advisers, Sustainability Accounting, and Their Effects on Corporate Social Responsibility, 49 Env’t L. Rep. 10155, 10162 (2019).
Id. at 10162 n.72 (citing In re Lions Gate Ent. Corp. Sec. Litig., 165 F. Supp. 3d 1, 5–6 (S.D.N.Y. 2016)).
Commission Guidance Regarding Disclosure Related to Climate Risk, Security Act Release No. 33-9106, 75 Fed. Reg. 6290, 6292 (Feb. 8, 2010).
Rissman & Kearny, supra note 13, at 10163 (citing Notice of Commission Conclusions and Rulemaking Proposals in the Public Proceeding Announced in the Securities Act Release No. 5,569, Exchange Act Release No. 11,733, 8 SEC Docket 41 (Oct. 14, 1975)). The SEC based its opinion on the fact such nonfinancial information would burden companies and offer little useful information for investors. Id.
Georg Kell, The Remarkable Rise of ESG, Forbes (July 11, 2018, 10:09 AM), https://www.forbes.com/sites/georgkell/2018/07/11/the-remarkable-rise-of-esg/#27733ee91695 [https://perma.cc/A9S4-757D].
Kevin L. Doran & Elias L. Quinn, Climate Change Risk Disclosure: A Sector by Sector Analysis of SEC 10-K Filings from 1995–2008, 34 N.C. J. Int’l L. & Com. Regul. 721, 733–34 (2008).
Commission Guidance Regarding Disclosure Related to Climate Risk, 75 Fed. Reg. at 6293–97.
Id. at 6293–95.
Olivier Jamin, Empowering Consumers and Investors to Choose a Sustainable Future, 8 Seattle J. Env’t L. 64, 69–70 (2018).
Id. at 69–71.
Press Release, Elizabeth Warren, Senator, U.S. Senate, Senator Warren, Representative Casten Lead Colleagues Introducing a Bill to Require Every Public Company to Disclose Climate-Related Risks (July 10, 2019), https://www.warren.senate.gov/newsroom/press-releases/senator-warren-representative-casten-lead-colleagues-introducing-a-bill-to-require-every-public-company-to-disclose-climate-related-risks [https://perma.cc/PE9A-L2GG].
Paul J. Saunders, Opinion: Warren’s Climate-Change Disclosure Bill Is Politics-as-Usual, Mkt. Watch (Aug. 7, 2019, 12:58 PM), https://www.marketwatch.com/story/warrens-climate-change-disclosure-bill-is-politics-as-usual-2019-08-07 [https://perma.cc/KCH4-5PVJ].
See, e.g., What You Need to Know About a Federal Carbon Tax in the United States, Ctr. on Glob. Energy Pol’y Colum. Univ. Sch. Int’l Pub. Affs., https://energypolicy.columbia.edu/what-you-need-know-about-federal-carbon-tax-united-states [https://perma.cc/D3FG-773A] (last visited July 1, 2020) (distinguishing between seven different pieces of legislation proposing a federal carbon tax in 2018 and 2019).
See Myles Allen et al., Intergovernmental Panel on Climate Change, Summary for Policymakers 5 (Valérie Masson-Delmotte et al. eds., 2018), https://www.ipcc.ch/site/assets/uploads/sites/2/2019/05/SR15_SPM_version_report_LR.pdf [https://perma.cc/N4F3-LWNQ].
Id. at 12.
Id. at 9, 18–19 (“Risks to global aggregated economic growth due to climate change impacts are projected to be lower at 1.5°C than at 2°C by the end of this century . . . .”).
Id. at 9.
Id. at 18.
See, e.g., Bill McKibben, Money Is the Oxygen on Which the Fire of Global Warming Burns, New Yorker (Sept. 17, 2019), https://www.newyorker.com/news/daily-comment/money-is-the-oxygen-on-which-the-fire-of-global-warming-burns [https://perma.cc/3N2D-E9EX] (“[I]n the three years since the signing of the Paris climate accord . . . lending to the [fossil fuel] industry has increased every year, and much of the money goes toward the most extreme forms of energy development.”).
See McKibben, supra note 33 (discussing the $20 trillion “carbon bubble” that could result from keeping coal, gas, and oil in the ground and the Rockefeller Family Fund’s 2016 decision to divest from fossil fuels).
Ben Caldecott et al., Inter-Am. Dev. Bank, Stranded Assets: A Climate Risk Challenge 5 (Ana R. Rios ed., 2016), https://publications.iadb.org/publications/english/document/Stranded-Assets-A-Climate-Risk-Challenge.pdf [https://perma.cc/Q4PB-M4FM] (citing Ben Caldecott et al., Stranded Assets in Agriculture: Protecting Value from Environment-Related Risks 11 (2013), https://www.smithschool.ox.ac.uk/publications/reports/stranded-assets-agriculture-report-final.pdf [https://perma.cc/9GL9-T8UZ]) [hereinafter Caldecott, Climate Risk Challenge]. In the past, divestment campaigns have been used to address social qualms, such as the anti-apartheid divestment campaign in the 1980s. See Laura E. Deeks, Discourse and Duty: University Endowments, Fiduciary Law, and the Cultural Politics of Fossil Fuel Divestment, 47 Env’t L. 335, 358–59 (2017); Research Announcement: Moody’s: Stranded Asset Risk Is Low for US Regulated Utilities Sector As It Shifts Toward Renewable Energy, Moody’s Invs. Serv. (Nov. 5, 2018), https://www.moodys.com/research/Moodys-Stranded-asset-risk-is-low-for-US-regulated-utilities--PBC_1148481 [https://perma.cc/L848-CKZC] (arguing that the United States’ regulated utilities sector’s investment in renewable energy resources will largely avoid the stranded asset problem in the United States in part because they can probably recover transition costs from consumers and the transition in many states has long lead times).
See Caldecott, Climate Risk Challenge, supra note 36, at 6–7.
TCFD, 2019 Status Report: Task Force on Climate-related Financial Disclosures 54 (2019), https://www.fsb-tcfd.org/wp-content/uploads/2019/06/2019-TCFD-Status-Report-FINAL-053119.pdf [https://perma.cc/3X8J-VP3Z] [hereinafter 2019 TCFD Report]; see also James Leaton, Investor Watch, Unburnable Carbon – Are the World’s Financial Markets Carrying a Carbon Bubble? 24 (2011), https://www.banktrack.org/download/unburnable_carbon/unburnablecarbonfullrev2.pdf [https://perma.cc/L8Z2-TZTL].
Mark Carney, Governor, Bank of Eng., Address at Lloyd’s of London 14–15 (Sept. 29, 2015), (transcript available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2015/breaking-the-tragedy-of-the-horizon-climate-change-and-financial-stability.pdf?la=en&hash=7C67E785651862457D99511147C7424FF5EA0C1A [https://perma.cc/JGV5-XP8C]).
Id. at 13.
TCFD, Final Report: Recommendations of the Task Force on Climate-Related Financial Disclosures 14 (2017), https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Report-062817.pdf [https://perma.cc/BFH4-6VEW] [hereinafter 2017 TCFD Report].
Id. at 33.
Id. at 17.
2019 TCFD Report, supra note 38, at 54–55.
See id. at 33–34, 63–64 (discussing alignment of the recommendations across materiality standards of the G20 countries); 2017 TCFD Report, supra note 41, at 56 (comparing the United States’ materiality standard underpinning its financial disclosure requirements to those of other countries).
See 2017 TCFD Report, supra note 41, at 55–56.
2019 TCFD Report, supra note 38, at 113 (“[M]any regulatory organizations are taking steps to further understand what the best approach to mandatory disclosure may be, and over 35 regulators and government organizations from around the world have become TCFD supporters.”).
Network for Greening the Fin. Sys., A Call For Action: Climate Change as a Source of Financial Risk 4 (2019), https://www.banque-france.fr/sites/default/files/media/2019/04/17/ngfs_first_comprehensive_report_-_17042019_0.pdf [https://perma.cc/HZ9X-BPXM].
Id. at 31–33.
Id. at 1, 32; see also Climate Disclosure Standards Bd., Roadmap for Adopting the TCFD Recommendations 6–13 (2019), https://www.cdsb.net/sites/default/files/roadmap_for_adopting_the_tcfd_recommendations.pdf [https://perma.cc/RX6D-GLP4] (discussing potential pathways for implementation of TCFD recommendations into national legislation in G7 countries).
Jill E. Fisch, Making Sustainability Disclosure Sustainable, 107 Geo. L.J. 923, 944–48 (2019); see also Elisse B. Walter, Former Chairman, Sec. & Exch. Comm’n, Keynote Remarks at the 2016 SASB Symposium, The Future of Sustainability Disclosure: What Remains Unchanged in an Environment of Regulatory Uncertainty? (Dec. 7, 2016) (transcript available at https://corpgov.law.harvard.edu/2016/12/07/the-future-of-sustainability-disclosure-what-remains-unchanged-in-an-environment-of-regulatory-uncertainty/ [https://perma.cc/VF2L-CQ6B]).
See Pamela Griesemer, CDP, GRI, and SASB Working Together to Align Standards, Keramida, Inc. Blog (Nov. 7, 2018), https://www.keramida.com/blog/cdp-gri-and-sasb-working-together-to-align-standards [https://perma.cc/3TW7-KW3J] (discussing the three organizations’ joint effort to simplify disclosure standards to align with TCFD recommendations).
Id. (noting the increase of U.S.-based institutions supporting TCFD recommendations since June 2017).
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S. Ct. 1318, 1333 (2015).
See 17 C.F.R. § 229 (2019).
See SEC Interpretative Releases Archives—Older Releases, Sec. & Exch. Comm’n, https://www.sec.gov/rules/interp/interparchive/interparch1989.shtml [https://perma.cc/5AN6-6PA7] (archiving interpretative releases since 1960).
Commission Guidance Regarding Disclosure Related to Climate Risk, Security Act Release No. 33-9106, 75 Fed. Reg. 6290, 6295–97. For example, “Item 303 [of Regulation S-K] requires registrants to assess whether any enacted climate change legislation or regulation is reasonably likely to have a material effect on the registrant’s financial condition or results of operation.” Id. at 6296.
Id. at 6295–97.
Id. at 6295.
Id. at 6293.
17 C.F.R. § 229.101(c)(1)(xii) (2019) (“The registrant shall disclose any material estimated capital expenditures for environmental control facilities for the remainder of its current fiscal year and its succeeding fiscal year and for such further periods as the registrant may deem materials [sic].”).
Commission Guidance Regarding Disclosure Related to Climate Risk, 75 Fed. Reg. at 6296.
17 C.F.R. § 229.103 (2019).
Joana Setzer & Rebecca Byrnes, Grantham Rsch. Inst. on Climate Change & Env’t, Global Trends in Climate Change Litigation: 2019 Snapshot 3 (Georgina Kyriacou ed., 2019), http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2019/07/GRI_Global-trends-in-climate-change-litigation-2019-snapshot-2.pdf [https://perma.cc/9YY7-APDQ].
Commission Guidance Regarding Disclosure Related to Climate Risk, 75 Fed. Reg. at 6293.
17 C.F.R. § 229.303 (2019).
Commission Guidance Regarding Disclosure Related to Climate Risk, 75 Fed. Reg. at 6296.
17 C.F.R. § 229.503(c) (2019).
Commission Guidance Regarding Disclosure Related to Climate Risk, 75 Fed. Reg. at 6296
Now known as DuPont de Nemours, Inc. after its spinoff in June 2019. See Press Release, DuPont, DuPont Becomes Independent Company, Uniquely Positioned to Drive Innovation-Led Growth and Shareholder Value (June 3, 2019), https://www.investors.dupont.com/news-and-media/press-release-details/2019/DuPont-Becomes-Independent-Company-Uniquely-Positioned-to-Drive-Innovation-Led-Growth-and-Shareholder-Value/defaultt.aspx [https://perma.cc/2R44-EZAW] (announcing formation of DuPont de Nemours, Inc., formerly known as DowDuPont Inc.). Dow Chemical Company and DuPont de Nemours, Inc. are two of the companies in the relatively small group of U.S.-based TCFD supporters. TCFD Supporters, supra note 54.
DowDuPont, Inc., Annual Report 82 (Form 10-K) (Feb. 11, 2019).
Id. at 81.
Jim Coburn & Jackie Cook, Ceres, Cool Response: The SEC & Corporate Climate Change 2, 21 (2014), https://www.ceres.org/sites/default/files/reports/2017-03/Ceres_SECguidance-append_020414_web.pdf [https://perma.cc/3BB5-Q2SW].
Id. at 20.
Id. at 21.
Id. at 23.
Id. at 25. These companies were Companhia de Saneamento Básico do Estado de São Paulo, National Grid, and OGE Energy. Id.
Id. at 25–27.
Climate Risk Disclosure Act of 2019, H.R. 3623, 116th Cong. § 1 (2019).
See All Actions H.R. 3623—116th Congress (2019–2020), Congress.gov, https://www.congress.gov/bill/116th-congress/house-bill/3623/all-actions [https://perma.cc/6CNN-SW3P] (last visited Aug. 8, 2020) [hereinafter H.R. 3623 Actions]; Cosponsors: H.R. 3623—116th Congress (2019–2020), Congress.gov, https://www.congress.gov/bill/116th-congress/house-bill/3623/cosponsors [https://perma.cc/RXG2-AVXB] (last visited Aug. 8, 2020) (listing thirty-five democratic bill cosponsors and zero republican cosponsors).
Climate Risk Disclosure Act of 2019, S. 2075, 116th Cong. § 1 (2019).
See House Event 109770, Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social, and Governance Disclosures, Congress.gov, https://www.congress.gov/event/116th-congress/house-event/109770 [https://perma.cc/4Q4S-T653] (last visited Aug. 8, 2020) (providing video proceedings and a listing of witnesses and legislation discussed during the hearing).
See H.R. 3623 Actions, supra note 87.
See All Actions S. 2075—116th Congress (2019–2020), Congress.gov, https://www.congress.gov/bill/116th-congress/senate-bill/2075/all-actions [https://perma.cc/2DGG-TEJX] (last visited Aug. 8, 2020) [hereinafter S. 2075 Actions].
See supra notes 20–23, 59 and accompanying text (discussing SEC climate risk disclosure guidance).
Climate Risk Disclosure Act of 2019, S. 2075, 116th Cong. § 5(a)(1)(A), (1)(D)(ix) (2019) (defining the term “appropriate climate principals” as including heads of the Environmental Protection Agency, the National Oceanic and Atmospheric Administration, the Office of Management and Budget, and “any other Federal agency determined appropriate by the [SEC]”).
Id. § 6(a).
Id. § 6(a)(1)(B)–(2)(B).
See id. § 4(2)(D) (finding that disclosures should “allow for intra- and cross-industry comparison, to the extent practicable, of climate-related risk exposure through the inclusion of standardized industry-specific and sector-specific disclosure metrics”); id. § 6(a)(1)(A) (stating that rulemaking should require disclosures for “the sectors of finance, insurance, transportation, electric power, mining, and non-renewable energy . . . and any other sector determined appropriate by the [SEC]”).
See id. § 8 (including a “Backstop” provision in the CRDA Senate bill).
Id. § 6(a)(2)(C).
See SEC Modernization of Oil and Gas Reporting, 74 Fed. Reg. 2157, 2169–78 (Jan. 14, 2009) (to be codified at 7. C.F.R. pt. 210, 211, 229, 249) (revising Items 102, 801, and 802 of Regulation S–K in light of the codification of previously released Industry Guide 2, which allows oil and gas producing companies to disclose probable and possible oil and gas reserves). The rule also limited disclosure of undeveloped oil and gas reserves to that which the company expects to be drilled within five years. Id. at 2192. As recently as June 2018, the SEC considered revising the undeveloped reserves rule in light of the shale boom, which extends the time to extract proved reserves to well beyond five years. Steve Goldstein, SEC May Loosen Rules on Oil Reserve Reporting, Clayton Says, Mkt. Watch (June 21, 2018, 12:10 PM), https://www.marketwatch.com/story/sec-may-loosen-rules-on-oil-reserve-reporting-clayton-says-2018-06-21 [https://perma.cc/4CCL-R82D].
What We Do, supra note 8.
See Daniel Reich, Investors Need to Know About Climate Risks, Hill (Aug. 29, 2019, 10:00 AM), https://thehill.com/opinion/energy-environment/459258-investors-need-to-know-about-climate-risks [https://perma.cc/NXN9-SJQ9] (stating that the SEC staff lacks the scientific expertise to assess climate risks).
Brad Plumer, Trump Put a Low Cost on Carbon Emissions. Here’s Why It Matters, N.Y. Times, Aug. 24, 2018, at A16 (discussing the EPA’s August 2018 reduction of its calculation of the SC-CO2 from $50 per metric ton of CO2 emissions to a range of $1 to $7 per metric ton of CO2 emissions).
Kevin Rennert & Cora Kingdon, Social Cost of Carbon 101, Res. For the Future 1, 4 (Aug. 1, 2019), https://media.rff.org/documents/SCC_Explainer.pdf [https://perma.cc/A5KM-6Y25] (“In the federal government’s initial implementation of the [SC-CO2], government agencies and departments each developed and applied their own estimates.”).
Plumer, supra note 103.
Id. In practice, a high discount rate minimizes future effects, positive and negative, while a low discount rate values future effects nearly equal to effects today. Rennert & Kingdon, supra note 104, at 2.
Umair Irfan, Climate Change Is a Global Injustice. A New Study Shows Why, Vox (Sept. 26, 2018, 3:40 PM), https://www.vox.com/2018/9/26/17897614/climate-change-social-cost-carbon [https://perma.cc/JA3N-TLFQ] (arguing that, by comparing the social cost of carbon between countries, “wealthy countries face a moral imperative to look beyond their borders and GDPs . . . to cut their own emissions”).
See Climate Risk Disclosure Act of 2019, S. 2075, 116th Cong. §§ 2(11), 4(2)(F), 6(a)(1)(D), 6(a)(2)(A)(vi) (2019).
Id. § 2(11). The bill includes climate change impacts such as: “changes in net agricultural productivity;” decreases in capital and labor productivity;" “effects on human health;” “property damage from increased sea-level rise, flooding, wildfires, and frequency and severity of extreme weather events;” and “the value of ecosystem services.” Id. § 2(11)(A)–(E).
Id. §§ 2(11), 6(a)(1)(D).
Id. § 6(a)(1)(D)(iii).
Irfan, supra note 107 (noting that a recent study calculating the social cost of carbon for individual countries omitted international trade and direct consequences of climate change, such as flooding and permafrost melting).
Rennert & Kingdon, supra note 104, at 4.
Exec. Order No. 13,783, 3 C.F.R., 2017 Comp., p. 314, 318 (2018) (“Promoting Energy Independence and Economic Growth”).
Rennert & Kingdon, supra note 104, at 4.
Id. (stating that post-Executive Order discount rates were at 3% and 7% compared to those previously reported by the Interagency Working Group, at 2.5%, 3%, and 5%). The difference between a 3% and a 7% discount rate is substantial: the SC-CO2 in the year 2050 would be $100.62 per metric ton at a 2.5% discount rate, but only $2.20 per metric ton at a 7% discount rate. Id. at 4, 2 tbl. (showing the wide range of calculations based on discount rate).
Climate Risk Disclosure Act of 2019, S. 2075, 116th Cong. § 2(11) (2019).
Rennert & Kingdon, supra note 104, at 4.
See, e.g., Interagency Working Grp. on Soc. Cost of Carbon, Technical Support Document: Social Cost of Carbon for Regulatory Impact Analysis Under Exec. Order 12866, at 43 (2010), https://obamawhitehouse.archives.gov/sites/default/files/omb/inforeg/for-agencies/Social-Cost-of-Carbon-for-RIA.pdf [https://perma.cc/5EGY-QFJB] (extrapolating population growth rates, GDP per capita growth rates, fossil and industry carbon intensity growth rates, net land use carbon dioxide emission rates, and noncarbon dioxide radiative forcing rates from 2100 to 2300). The SEC did not participate in the Interagency Working Group’s report. Id. at 2–3.
See Regulatory Rollback: The Social Cost of Carbon, Harv. Env’t & Energy L. Program (Sept. 27, 2017), https://eelp.law.harvard.edu/2017/09/the-social-cost-of-carbon/ [https://perma.cc/4EUR-GMND] (describing the current administration’s efforts to eliminate federal programs researching the SC-CO2 and applying SC-CO2 calculations to cost-benefit analysis); cf. Exec. Order No. 13,783, supra note 115, at p. 317 (the administration’s repealing the Environmental Protection Agency’s Clean Power Plan indicates a reticence toward climate proactivism).
William Hinman, Dir., Div. of Corp. Fin., Sec. & Exch. Comm’n, Remarks at the 18th Annual Institute on Securities Regulation in Europe: Applying a Principles-Based Approach to Disclosing Complex, Uncertain and Evolving Risks (Mar. 15, 2019) (transcript available at https://www.sec.gov/news/speech/hinman-applying-principles-based-approach-disclosure-031519 [https://perma.cc/JP7G-Z4DP]) (“One item the 2010 [climate] guidance does not touch upon is the board’s risk management role in this area. Item 407(h) of Regulation S-K and Item 7 of Schedule 14A require a company to disclose the extent of its board’s role in the risk oversight of the company . . . .”).
See Modernization of Regulation S-K Items 101, 103, and 105, 84 Fed. Reg. 44358, 44359 (proposed Aug. 23, 2019).
Id. at 44360, 44372.
Id. at 44359, 44379.
Press Release, U.S. Sec. & Exch. Comm’n, SEC Proposes to Modernize Disclosures of Business, Legal Proceedings, and Risk Factors Under Regulation S-K (Aug. 8, 2019), https://www.sec.gov/news/press-release/2019-148 [https://perma.cc/93YZ-B8H9].
Id. The study on Regulation S-K was mandated by the Jumpstart Our Business Startups (JOBS) Act. Id.
Comments on Proposed Rule: Modernization Regulation S-K Items 101, 103, and 105, U.S. Sec. & Exch. Comm’n, https://www.sec.gov/comments/s7-11-19/s71119.htm [https://perma.cc/HNU5-QSJT] (last visited Aug. 8, 2020). Nearly 2,900 commenters submitted a form letter criticizing the agency’s decision to increase “principles-based” disclosures. Id.; Letter Type A, U.S. Sec. & Exch. Comm’n, https://www.sec.gov/comments/s7-11-19/s71119-typea.htm [https://perma.cc/Q6U8-DHM6] (Oct. 17, 2019).
See, e.g., U.S. Chamber of Com. Ctr. for Cap. Mkt. Competitiveness, Comment Letter on Proposed Rule Modernizing Regulation S-K Items 101, 103 and 105, at 5 (Oct. 22, 2019), https://www.sec.gov/comments/s7-11-19/s71119-6324038-194710.pdf [https://perma.cc/P7ED-MGLA] (criticizing the proposed rule’s retention of a materiality threshold of $300,000 for disclosing a fine related to environmental liability); Chevron Corp., Comment Letter on Proposed Rule Modernizing Regulation S-K Items 101, 103 and 105, at 3 (Oct. 22, 2019), https://www.sec.gov/comments/s7-11-19/s71119-6323234-194676.pdf [https://perma.cc/LG79-FUJT] (asserting that changing the standard of disclosure in Item 105, Risk Factors, from “most significant” to “material” would not simplify disclosures).
See, e.g., Cal. Pub. Emp. Ret. Sys., Comment Letter on Proposed Rule Modernizing Regulation S-K Items 101, 103 and 105, at 1, 4 (Oct. 22, 2019), https://www.sec.gov/comments/s7-11-19/s71119-6324067-194727.pdf [https://perma.cc/VG5J-KJMV] (“There is value in principles-based disclosures where registrants may tell their own stories, but on critical matters, investors want to see comparable numbers.”).
See Modernization of Regulation S-K Items 101, 103, and 105, 84 Fed. Reg. 44358, 44358 (proposed Aug. 23, 2019) (demonstrating that climate risk disclosure was not included within the proposal for public comments).
Robert J. Jackson & Allison Herren Lee, Joint Statement on Proposed Changes to Regulation S-K, U.S. Sec. & Exch. Comm’n (Aug. 27, 2019), https://www.sec.gov/news/public-statement/statement-jackson-lee-082719 [https://perma.cc/E3LQ-SBNM] (“Despite early skepticism about the utility of [sustainability] measures, recent efforts to refine them through engagement with issuers and investors have borne real fruit.”). On August 26, 2020, the SEC passed a final version of the rule by a 3–2 vote, with Commissioner Allison Herren Lee and Commissioner Caroline Crenshaw (who filled the seat previously held by Commissioner Robert Jackson), dissenting. See Modernization of Regulation S-K Items 101, 103, and 105, Exchange Act Release No. 33-10825 (Aug. 26, 2020), https://www.sec.gov/rules/final/2020/33-10825.pdf [https://perma.cc/6FZC-TPF3]; Mark Maurer, SEC to Allow Businesses More Flexibility in Disclosing Risk, Legal Information, Wall St. J. (Aug. 26, 2020, 3:03 PM), https://www.wsj.com/articles/sec-to-allow-businesses-more-flexibility-in-disclosing-risk-legal-information-11598468579 [https://perma.cc/M32Y-B3M9]; Katanga Johnson, Trump to Nominate Lawyer Crenshaw to Fill Democratic Commissioner Slot, Reuters (June 18, 2020, 11:27 AM), https://www.reuters.com/article/us-usa-sec-nominations/trump-to-nominate-lawyer-crenshaw-to-serve-as-democratic-sec-commissioner-idUSKBN23P30A?il=0 [https://perma.cc/76P2-BH4A]. Both commissioners noted the final rule’s silence on climate risk, notwithstanding the volume of comments on the subject. Id.; see also Allison Herren Lee, Comm’r, U.S. Sec. & Exch. Comm’n, Regulation S-K and ESG Disclosures: An Unsustainable Silence (Aug. 26, 2020) (transcript available at https://www.sec.gov/news/public-statement/lee-regulation-s-k-2020-08-26) [https://perma.cc/G5K5-4Q2Y]); Caroline Crenshaw, Comm’r, U.S. Sec. & Exch. Comm’n, Statement on the “Modernization” of Regulation S-K Items 101, 103, and 105, (Aug. 26, 2020) (transcript available at https://www.sec.gov/news/public-statement/crenshaw-statement-modernization-regulation-s-k [https://perma.cc/B4NE-JXXG]).
Sustainability Accountability Standards Bd., Comment Letter on Proposed Rule Modernizing Regulation S-K Items 101, 103 and 105, at 1 (Oct. 17, 2019), https://www.sec.gov/comments/s7-11-19/s71119-6313644-193668.pdf [https://perma.cc/J9SX-RAQ6]. On March 10, 2020, Chairman Clayton and his staff met with three top-level representatives of SASB to discuss the proposed rule. Memorandum from the Office of the Chairman regarding a March 10, 2020 Meeting with Representatives of the Sustainability Accounting Standards Board (SASB) 1 (Mar. 10, 2020), https://www.sec.gov/comments/s7-11-19/s71119-6932199-211593.pdf [https://perma.cc/3RMW-3MD6].
See TCFD Supporters, supra note 54.
S. 2075 Actions, supra note 91; H.R. 3623 Actions, supra note 87.
See Env’t Prot. Agency, EPA Fact Sheet: Social Cost of Carbon 2 (2016), https://19january2017snapshot.epa.gov/sites/production/files/2016-12/documents/social_cost_of_carbon_fact_sheet.pdf [https://perma.cc/83FY-HP8W] (describing how the Council of Economic Advisors and the Office of Management and Budget created the Interagency Working Group and its composition).
The CRDA only references materiality in its “Sense of Congress” and “Findings” sections; there is no mention of the standard in the bill’s operative sections. Climate Risk Disclosure Act of 2019, S. 2075, 116th Cong. §§ 3(7), 4(2)(A)(i) (2019).
See Hinman, supra note 122.
See Andrew Ross Sorkin, BlackRock C.E.O. Larry Fink: Climate Crisis Will Reshape Finance, N.Y. Times (Feb. 24, 2020), https://www.nytimes.com/2020/01/14/business/dealbook/larry-fink-blackrock-climate-change.html [https://perma.cc/WYF4-FT47].
Stephen Gandel, BlackRock to Sell $500 Million in Coal Investments in Climate Change Push, CBS News (Jan. 14, 2020), https://www.cbsnews.com/news/blackrock-puts-climate-change-first-in-its-its-investment-strategy/ [https://perma.cc/AU2X-BGUP].
Larry Fink, A Fundamental Reshaping of Finance, BlackRock, https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter [https://perma.cc/MRW5-FE6S] (last visited July 11, 2020).
In fact, Senator Warren and her colleagues asked Mr. Fink to endorse the CRDA in light of his letter. Senators Warren, Whitehouse, Booker, Van Hollen Call on BlackRock CEO Larry Fink to Endorse the Climate Risk Disclosure Act in Light of His Public Climate Commitments, Sen. Elizabeth Warren (Feb. 26, 2020), https://www.warren.senate.gov/oversight/letters/senators-warren-whitehouse-booker-van-hollen-call-on-blackrock-ceo-larry-fink-to-endorse-the-climate-risk-disclosure-act-in-light-of-his-public-climate-commitments [https://perma.cc/7U9Z-BC85].
See discussion supra Section II.B.
See discussion supra Sections II.B–C.
See discussion supra Sections II.B–C.
See discussion supra Section II.B. TCFD, for example, first issued its recommendations in 2017. 2017 TCFD Report, supra note 41, at 14.
See discussion supra Section II.B.
See discussion supra Section II.C.
See discussion supra Part III and notes 116–17.
See discussion supra Part IV.
See, e.g., Fink, supra note 147.