The Securities and Exchange Commission (SEC) announced the creation of a new task force on March 4 to address violations of environmental, social, and governance-related (ESG) disclosure requirements. The Climate and ESG Task Force will be located in the SEC's Division of Enforcement and led by Acting Deputy Director of Enforcement Kelly Gibson, who will oversee a 22-member team drawn from across the SEC. The task force will focus initially on material gaps or misstatements in disclosure of climate risk under existing rules. The task force will use “sophisticated data analysis to mine and assess information … to identify potential violations” and will also pursue tips, referrals, and whistleblower complaints on ESG-related issues.
Announcement of the Climate and ESG Task Force is the latest salvo in a volley of recent pronouncements from the SEC under the new Biden administration relating to disclosure of climate risks. Also last week, the SEC's examinations unit indicated in its annual report that it will increase its focus on climate risks as it probes regulated companies in the upcoming year, and SEC Acting Chair Allison Herren Lee stated in remarks at a conference that she wants to implement a “global” framework for climate disclosures. Meanwhile, President Biden's nominee to chair the SEC, Gary Gensler, suggested in his confirmation hearing before the Senate last week that he will work to strengthen existing ESG reporting requirements. In late February, Acting Chair Lee called for the SEC to review and begin the process of updating its existing 2010 guidance on climate disclosures. And earlier in February, the SEC named its first-ever senior policy adviser for ESG regulatory issues.
While the push to increase ESG disclosure requirements has picked up steam under the new administration, the SEC had been looking at measures to standardize ESG reporting even prior to the election. In May 2020, the SEC's Investor Advisory Committee approved a recommendation for an integrated disclosure regime for ESG disclosures that would provide a uniform framework for related disclosures for public companies and allow investors to compare one company to another.
While new ESG disclosure regulations or guidance seem almost a certainty in the not-so-distant future, the SEC's increased focus on disclosure of climate-related risks and establishment of a task force to examine compliance with existing requirements mean that public companies need to get up to speed quickly on what they are already required to do and begin thinking about how to prepare for additional disclosure obligations going forward.
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