Investors: SEC Needs Better Disclosure on Climate Change Risks

Fourteen of the nation's largest institutional investors called on the Securities and Exchange Commission to require improved corporate climate risk disclosure and, for the first time, address a broader range of environmental, social, and governance risks, or so-called "ESG" issues, in disclosure requirements.

The letter was sent in response to the SEC's request for public comment on its 21st Century Disclosure Initiative, File No. 4-567, which proposes to modernize the current SEC disclosure system to enhance its usefulness to investors. The 14 signatories to the letter include asset managers and leading U.S. institutional investors such as CalPERS, CalSTRS, and the Maryland, New Jersey, New York city, and New York public pension funds or treasurers.

Citing investors' previous attempts to engage with the SEC on climate risk disclosure, and the growing number of businesses that are disclosing climate risks and climate change impacts on their financial performance and competitiveness, the letter lays out a need for deeper engagement with the SEC on disclosure issues. It also cites the 21st Century Disclosure Initiative as an ideal venue for such engagement.

"What we seek is not radical, but rooted in the SEC's duty to follow the most fundamental investor protection principle there is -- the right to know," said California State Treasurer Bill Lockyer. "The consensus recognizing the need for businesses to fully assess and disclose climate risks is growing by the day. It's time for the SEC to update its regulations to account for these risks, and the broader panoply of environmental, social, and governance issues."

"Climate change, like subprime mortgages, poses far-reaching hidden financial risks that investors cannot ignore," said Mindy S. Lubber, president of Ceres and director of 70-member Investor Network on Climate Risk. "A modernized SEC disclosure system must address investors' strong and growing need for better corporate disclosure of climate risks."

The investor letter also includes a first-time request for the SEC to consider how material ESG data could be integrated into registrant's SEC filings. While many companies disclose ESG information in their sustainability reports and on their Web sites, investors say that isn't always enough given the financial risks these factors can create. For example, ESG information can disclose material risks such as water-related risks from growing water scarcity, as well as labor and supply chain risks such as reduced availability of a trained workforce or a suppliers' failure to follow environmental regulations.

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