In promising news for climate change whistleblowers, the Acting Chair of the Securities and Exchange Commission (SEC), Allison Herren Lee, announced on March 15th that the SEC will be seeking public comments on how to improve corporate climate-related risk disclosure requirements.
Up until now, these disclosures have been largely voluntary. Initiatives like the CDP (formerly the Carbon Disclosure Project) and the Task Force on Climate-Related Financial Disclosures (TFCD) exist to encourage greater corporate disclosure of climate-related risks. However, companies and financial institutions have a strong financial incentive to stay on the same path and to value short-term profits over long-term risk management.
As a result, they are unlikely to make necessary adjustments on their own. For disclosures to be effective, a report from the Climate Risk Disclosure Lab highlights that there must be a thorough, robust and mandatory disclosure framework for climate-related information – one that will largely be implemented by the SEC, which has the authority to require standardized corporate climate disclosures for publicly-listed corporations, including publicly-listed bank and nonbank financial institutions.
As Lee noted in her speech:
“Human capital, human rights, climate change – these issues are fundamental to our markets, and investors want to and can help drive sustainable solutions on these issues. We see that unmistakably in shifts in capital toward ESG investing, we see it in investor demands for disclosure on these issues, we see it increasingly reflected on corporate proxy ballots, and we see it in corporate recognition that consumers and investors alike are watching corporate responses to these issues more closely than ever.”
Regulators, politicians and market participants are all beginning to recognize the serious and systemic risk that climate change poses to financial stability and the need for mandatory climate risk disclosure regimes. Deception on climate-related risks could create what Mark Carney, the former Governor of the Bank of England, called a “Minsky moment,” a sudden collapse in the value of assets, resulting in a financial crisis.
This announcement from the SEC is a promising step towards mitigating this risk. The National Whistleblower Center welcomes this news and is looking forward to engaging in this conversation. Mandatory climate-related risk disclosures will increase opportunities for whistleblowers with relevant information to come forward and assist the SEC and law enforcement to meet the challenge of climate change that threatens the stability of our economy, our environment and our health.
The public comment period will be open for 90 days.