5 Action Steps for the Securities and Exchange Commission to Lead a National Mobilization to Defeat the Climate Crisis

The world’s top economists are clear: climate change is a major threat and could cause the next recession. President-elect Biden must rein in climate’s systemic risk to our financial system. Selecting Gary Gensler to chair the SEC shows that Biden takes the climate financial risk seriously. During the Obama Administration, Gary Gensler was a strong voice for Wall Street accountability, and he must bring that same approach to the SEC.

Gensler must set new rules to enhance public disclosure of climate risks such as fossil fuel holdings, and emissions reduction targets. The Securities and Exchange Commission’s job is to enforce stability in our economy, and climate change poses an incalculable risk to our economy. But President Trump has ignored climate risk the same way he has ignored climate science.

Trump’s SEC refused to enforce the Obama-Biden administration’s guidance for companies to disclose climate risk, and weakened investors’ ability to propose shareholder resolutions on climate risk. Biden’s SEC should aggressively enforce the Obama-Biden 2010 disclosure rules and restore investor voting rights on environmental and social responsibility. The SEC should also direct credit rating agencies to include climate risk in their ratings and enforcement standards.

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Reducing the risk of a climate-fueled recession starts with clear disclosure to the public about climate risk. The new SEC Chair must drive climate risk transparency and accountability, as part of a national all-of-government effort to defeat climate change and protect our economic system.

In order to realize Biden’s climate mandate, every federal agency must become a climate agency. The Securities and Exchange Commission will be critical in this effort. Today, Evergreen Action is releasing 5 concrete actions that the next SEC must deliver in the all-out government mobilization to defeat the climate crisis:

In 2010, the Obama-Biden administration issued guidance on how the SEC should apply existing disclosure requirements to climate change risks. Under the Trump administration, however, that guidance has been minimally enforced — for example, the agency sent only 6 comment letters to companies related to climate risk disclosure between 2016 and 2020, down from 49 in 2010 and 2011. The Biden administration should immediately direct the SEC to pursue proactive and aggressive enforcement of the 2010 guidance on climate risk, while also developing new, stronger rules on climate disclosure.

Enforcing existing guidance is just the first step. The new SEC chair should go further by issuing new standards concerning the disclosure of climate-related risks, holdings, and commitments. These mandatory disclosure requirements should include the broadest possible definitions of climate risk, including material, legal, and financial risks. The standards should cover corporations’ holdings in fossil fuel companies and assets, given their likelihood to lose significant value in the ongoing energy transition, and in a carbon-constrained world. They should also include companies’ emissions reductions targets, which, if insufficient, could introduce financial vulnerability as legal suits continue to be brought against polluters for their role driving the climate crisis. And they should also include disclosure of accountant and auditor training practices for reviewing credit facility and bond agreements under growing climate change stressors.

ESG investing, referring to investment decisions that incorporate long-term environmental and social impacts in addition to financial returns, has grown dramatically in popularity among U.S. investors in the last several years — but a lack of standardized definitions, regulations, or disclosure requirements has fostered confusion among investors and limited accountability for firms marketing “socially responsible” or ESG funds. Meanwhile, the Trump administration has resisted efforts to standardize or incorporate ESG factors into SEC regulations, and one Trump-appointed commissioner has publicly questioned the value of ESG investing. The Biden administration should direct the SEC to develop standardized definitions for environmental, social, and corporate governance investment criteria in consultation with leading ESG investors and impacted community leaders, and should require adoption and disclosure of ESG factors in addition to specific disclosure requirements related to climate risk.

Using existing authority, the SEC can issue guidance directing credit ratings agencies to factor climate change into their ratings of securities’ financial risks. The commission can also use its authority to suspend an agency’s ability to issue ratings on certain classes of securities in order to enforce the inclusion of climate factors in ratings standards. To enable agencies to effectively account for climate risk and help avoid climate-related market shocks, the SEC should also direct federal climate experts to train credit raters in understanding the risks that climate change poses to companies’ investment holdings.

Under the Trump administration, the SEC issued rules limiting investors’ ability to propose shareholder resolutions, a key tool enabling shareholders to push companies to commit to environmental and social governance standards, including climate risk disclosure commitments and investment principles. The Biden administration should direct the commission to reverse those rules and secure investors’ abilities to introduce climate-related shareholder resolutions and participate in proxy voting in order to strengthen companies’ climate, environmental, and social governance.

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