SEC Chairman Jay Clayton has announced that he will step down at the end of this year. He testified today before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and covered a range of issues that he, his fellow Commissioners, and 4,500 employees have been confronting. He took this occasion to address climate change and issuer disclosure, and explain his thinking about the call by some market participants for standardized or uniform climate change disclosures.
Chairman Clayton explained, as a threshold matter, that U.S. issuers are required to disclose "current and expected future effects of climate-related issues on their operations and performance," to "the extent material." He explained that it is important for this information to be "decision-useful," and warned that standardizing climate change information in disclosures can be difficult across industries and sectors, potentially leading to a loss of information and insights that can derived from otherwise good disclosures.
Nevertheless, he noted, that the SEC is working on these issues with domestic and international parties "to see if greater standardization or comparability can be achieved, particularly within specific sectors." He explained that his personal view is that applying a sector-by-sector approach via broad principles may improve the decision useful nature of disclosures. He closed his comments on these matters with his own observation that the work of international bodies--such as the industry-led Task Force on Climate-Related Financial Disclosures--reflect movement towards this sector-by-sector approach to improving climate change disclosure.
Climate change and ESG issues more generally are widely expected to be a focus of the next administration. We will have to wait and see whether a goal of the next SEC Chair will include addressing the question of standardizing of such disclosures, as well as whether a sector-by-sector approach will be championed.
"Personally, I am of the view that improving the decision useful nature of disclosures in this area, including efforts to enhance comparability, may be best approached through broad principles, applied on a sector-by-sector basis. Again, from my perspective, I believe the work of international bodies, for example TCFD as discussed in its recent 2020 Status Report, is trending in this direction."