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SEC and U.S. Lawmakers Continue to Focus on Climate Related Disclosure

Regulators continue to address climate related disclosures; on January 30, 2020, SEC Commissioners offered their views on climate-related risk disclosures in the connection with the Proposed Amendments to Modernize and Enhance Financial Disclosures. These statements offer industry participants insight into the Commission’s work on climate-related disclosures and provide valuable insights for market participants. While the statements covered a lot of ground, some of the key takeaways are summarized below.

Separately, three U.S. Senators: Sheldon Whitehouse (D-RI), Brian Schatz (D-HI), and Martin Heinrich (D-MN) sent separate letters to the largest shareholders of Marathon Petroleum—Blackrock, JP Morgan, State Street, and Vanguard—asking these asset managers questions about Marathon’s lobbying against climate action, particularly regarding its efforts to unwind fuel efficiency standards for automobiles. The Senators also asked the four asset management firms to use their positions as the largest shareholders to discuss with Marathon why “…lobbying against efforts to limit carbon pollution is not only bad for the environment but also bad for Marathon’s long-term business prospects.”

In 2020, climate change will continue to be a top agenda item for both lawmakers and regulators. Thus, market participants that may be affected by the developments in this area should pay close attention and consider taking proactive steps to ensure that their opinion is heard.

Engage with the Commission

Chairman Clayton encouraged market participants to engage with the Commission and voice their opinions to help shape future regulation around this topic. He noted that the climate-related disclosure continues to be complex, uncertain, multi-national/jurisdictional, and dynamic. He shared his view that climate disclosure standard-setters should not too readily substitute their views for the views of issuers and investors and should stay within the bounds of their regulatory mandate. Chairman Clayton called on issuers and investors to help the Commission to better understand how they use environmentally and climate-related information to make capital allocation decisions on an issuer, industry and more general basis. He further noted that the Commission is especially interested in:

  • Discussing with issuers, such as property and casualty insurers, the extent to which they use, and their experience with, environmental and climate-related models and metrics in their operations and planning, including price, risk, and capital allocation decisions; and
  • Discussing with asset managers that have been using environmental and climate-related models and metrics to allocate capital on an industry- or issuer-specific basis and sharing their experience with that process.

Focus on Materiality

Commissioner Peirce in her statement noted that the Commission continues to face repeated calls to expand its disclosure framework to require ESG and sustainability disclosure regardless of materiality. But she cautioned that the Commission disclosure regime should continue to focus on the concept of materiality.

She noted that defining “materiality” too loosely could lead to information overload in disclosure documents, as well as increased costs to public companies, increased litigation risks, a decrease in the attractiveness of U.S. public capital markets, reduced investment returns, and “—most alarmingly—a misallocation of capital.” She further explained that some public companies have begun to provide reporting on environmental metrics to their investors, but that mostly occurs in voluntary and supplemental sustainability reports on company websites. According to Commissioner Peirce, the use of such metrics in annual reports filed with the Commission, “…where materiality is the controlling standard—is less common.”

The Need for Standardized Disclosure

Commissioner Lee took a different view on the Proposed Amendments to Modernize and Enhance Public Operating Company Financial Disclosure, criticizing the SEC’s proposal for not making “any attempt to address investors’ need for standardized disclosure on climate change risk.”

Notably, she also addressed climate-related disclosure at the inaugural meeting of the Asset Management Advisory Committee (AMAC). She said that she hopes that AMAC helps the Commission and the public to address:

  • How the Commission can ensure that asset managers and their clients can meaningfully pursue their investment goals and have access to critical information related to climate risk and, more broadly, to ESG issues?
  • What set of standards will best serve investors and asset managers in evaluating a company’s exposure to climate risk and assessing and pricing that risk?
  • What should it mean when a fund calls itself an ESG fund? and
  • How can the Commission and investors ensure that asset managers are not only investing in line with the long-term goals of their clients, but also voting in line with those goals?

Asset Managers are called to Act

U.S. Senators pressed four of the largest shareholders of Marathon Petroleum to act and discuss with Marathon their lobbying efforts, as well as the impact of climate change on Marathon’s long-term business prospects. In response to the Senators’ letter, Marathon cited its “long track record of continually improving the environmental performance” and added that they were one of the first independent refiners to publish a report in compliance with recommendations from the Task Force on Climate-Related Financial Disclosures.[1]

Learn More

As the Commission and lawmakers continue to consider the appropriate approach to climate related disclosure and engagement, market participants that may be affected by these developments should consider taking proactive steps to ensure that they have a voice in the regulatory process. To discuss the Commissioners’ statements and U.S. Senators’ letters to the four asset management firms and what they may mean for your business, please contact Vadim Avdeychik or any member of the Paul Hastings Impact and Sustainability Practice.



[1]  Vibeka Mair, Senators write to BlackRock, State Street etc. over Marathon Petroleum Lobbying on Climate Change, Responsible Investor (Jan. 28, 2020).


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