The PRI welcomes Senator Elizabeth Warren’s bill, which directs the US Securities and Exchange Commission to issue rules requiring companies to disclose information about their exposure to risks caused by climate change.
The proposed legislation, The Climate Risk Disclosure Act, would enable global investors to better assess and manage climate-related risks and opportunities in their portfolios. The PRI’s view is that companies should use the recommendations of the voluntary FSB Task Force on Climate-related Financial Disclosures as a practical framework for identifying and disclosing on financially relevant climate risks and opportunities.
The Climate Risk Disclosure Act directs the US Securities and Exchange Commission, in consultation with climate experts at other federal agencies to issue rules within one year that require every company to disclose:
- its direct and indirect greenhouse gas emissions;
- the total amount of fossil-fuel related assets that it owns or manages;
- how its valuation would be affected if climate change continues at its current pace or if policymakers successfully restrict greenhouse gas emissions to meet the Paris accord goal; and
- its risk management strategies related to the physical risks and transition risks posed by climate change.
A summary of the bill is available here.
Why does the PRI support climate-related disclosures?
- Climate change is the number one ESG topic for PRI signatories. Without better climate disclosure, investors face obstacles in assessing climate-related risks and opportunities in their portfolios.
- The Climate Risk Disclosure Act builds on long-standing work of global investors and Ceres, including the 2010 US Securities and Exchange Commission issuance of guidance for disclosure of climate change risks.
- The 2017 PRI-Baker McKenzie US country review recommended that US companies should adopt the TCFD recommendations as a useful voluntary framework. However, our review noted that that the SEC had not issued any additional guidance on climate or taken any enforcement action against companies relating to climate change disclosures (or lack thereof).
- The PRI’s view is that the SEC 2010 guidance started a discussion on how to address climate risks in disclosure, what information should be disclosed and where under Regulation S-K. However, it did not explain how companies should disclose their responses to climate-related risks, with investors still lacking adequate information on climate-related risks, highlighting the need for better climate reporting guidelines from the SEC.
- The Climate Risk Disclosure Act would provide clarity on disclosures needed in relation to climate change, enabling global investors to better understand climate-related physical and transition risks.
Please contact firstname.lastname@example.org for questions or comments on this legislation.