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What does climate risk disclosure have to do with the Securities and Exchange Commission?

You might be thinking, “the SEC is a securities regulator.” It doesn't have a role with respect to climate risk itself. You'd be right. We do, however, have an important role in helping to ensure that public companies make full, fair, and truthful disclosure about the material risks they face.

Our federal securities laws lay out a basic bargain in our markets. Investors like you get to decide which risks to take so long as those companies raising money from the public make what President Franklin Roosevelt called, “complete and truthful disclosure.”

Under the securities laws, the SEC is merit neutral. Investors get to decide what investments they make based upon those disclosures. The SEC focuses on the disclosures about, but not the merits of, investments.

Already today investors are making investment decisions, taking into consideration how climate risk may affect those investments. And already today, companies are responding and making public disclosures about their climate risks. Indeed, in 2022, 90 percent, that's nine out of ten of the top 1,000 issuers, publicly disclosed climate-related information.

Further, a majority of those top thousand companies made disclosures about their greenhouse gas emissions and the emissions related to their energy purchases. Investors representing tens of trillions of dollars in assets are making decisions, relying on those disclosures that are already happening.

Well, what we did today recognizes investors would benefit, though, from bringing greater consistency, comparability, and decision usefulness to such disclosures. That's why we finalized a rule to bring such consistency, comparability, decision-usefulness, and reliability to that which many issuers already are doing.

The final rules will require information about a registrant's climate-related risk that have materially impacted or are reasonably likely to have a material impact on its business strategy, results of operation, or financial condition. Now, materiality refers to the importance of information to investment and voting decisions about a particular company, not to the importance of the information to climate-related issues outside of those decisions.

In addition to being merit neutral, as President Roosevelt had laid out, we also are neutral about whether or how companies manage climate-related risks. This is about disclosure regarding what investors are investing in. Bringing such consistency in comparability and decision usefulness is good for investors like yourself. It's good for the issuers as well. Further, it helps promote efficiency in our capital markets, and that benefits investors and issuers alike.