Financial Regulation, Climate Change, and Climate-related Risk Disclosure

Timeline of Events

OBAMA ADMINISTRATION

Jan. 27, 2010 The Securities Exchange Commission voted to publish “Commission Guidance Regarding Disclosure Related to Climate Change,” which details how existing SEC disclosure rules applicable to certain mandatory financial filings for publicly traded companies should apply to risks associated with anthropogenic climate change.

Feb. 8, 2010 The SEC’s climate related disclosure guidance goes into effect, and the SEC publishes an interpretive release regarding existing disclosure requirements’ application to climate change.

 Apr. 22, 2016 The SEC published a concept release seeking public comment on modernizing disclosure requirements. The publication includes requests for comment on considering climate-related and environmental, social and governance (ESG) information in disclosure requirements.

TRUMP ADMINISTRATION

Jun. 15, 2017 The Task Force on Climate-Related Financial Disclosures published a report establishing recommendations for a climate reporting framework that provides clear, comparable, and consistent information to investors about the risks and opportunities presented by climate change.

Jan. 7, 2020 The Office of Compliance Inspections and Examinations of the SEC announced their examination priorities for fiscal year 2020, including the “accuracy and adequacy” of registered investment advisors’ ESG disclosures.

Jan. 30, 2020 SEC chairman Jay Clayton issued a statement supporting the agency’s current approach to ESG disclosures and encouraging “market participants to continue to engage” with the SEC on the topic.

Nov. 1, 2020 The Federal Reserve’s Financial Stability Report includes climate change for the first time in a section titled “The Implications of Climate Change for Financial Stability.”

Nov. 4, 2020 The SEC published a final rule that amends procedural requirements, as well as a provision relating to resubmitted proposals under the shareholder-proposal rule, Rule 14a-8, which protects a shareholder’s rights to exercise governance rights, such as electing board directors, via proxy voting. The rule protects shareholders’ proxy voting rights by requiring certain companies to include shareholder proposals in their proxy statements. 

Nov. 9, 2020 The Fed discussed climate change and microprudential risks in the November 2020 Supervision and Regulation Report, pointing to chronic flooding, wildfires, severe weather, and energy transitions as potential risks, and recommends adapting governance and disclosures to better account for climate-related risks.

Nov. 13, 2020 The EBSA’s final rule on Financial Factors in Selecting Plan Investments cautioned against considering ESG factors in ERISA-covered plan investments, emphasizing financial outcomes over other considerations, and restricted fiduciaries from offering ESG-themed funds as default options.

Jan. 14, 2021 The Office of the Comptroller of the Currency (OCC) finalized a rule designed to prevent banks from refusing to finance categories of projects or companies, requiring them to undergo individual risk assessments to support their decision to deny services to any particular potential customer.

BIDEN ADMINISTRATION 

Jan. 2021 The Federal Reserve formed the Supervision Climate Committee, a system-wide group bringing together senior staff across the Federal Reserve Board and Reserve Banks. The SCC will build the Federal Reserve’s capacity to understand the potential implications of climate change for financial institutions, infrastructure, and markets.

Feb. 24, 2021 SEC commissioner Allison Lee directed the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings, including updating the 2010 guidance and assessing existing compliance.

Feb. 26, 2021 The SEC issued an Investor Alert & Bulletin titled “Environmental, Social and Governance (ESG) Funds – Investor Bulletin” noting recent increases in popularity for ESG funds and providing educational information for investors.

Mar. 3, 2021 The SEC Division of Examinations announced its 2021 Examination Priorities, highlighting plans to integrate climate and ESG considerations into the agency’s broader regulatory framework. 

Mar. 4, 2021 The SEC Division of Enforcement announced the creation of the Climate and ESG Task Force to develop initiatives to identify ESG-related misconduct. The initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules. 

Mar. 10, 2021 The US Department of Labor released a statement on enforcement of its final rule on Financial Factors in Selecting Plan Investments and Fiduciary Duties Regarding Proxy Voting and Shareholder Rights, announcing that it will not enforce the rules’ disincentivization of ESG investing.

Mar. 15, 2021 The SEC requested comments to help assess the materiality of climate-related disclosures as well as the costs and benefits of different regulatory approaches to climate disclosure.

Mar. 17, 2021 The Commodity Futures Trading Commission announced the creation of the Climate Risk Unit (CRU), which supports the CFTC’s mission by focusing on the role of derivatives in assessing climate-related risk and facilitating a transition to a low-carbon economy. 

Mar. 23, 2021 Lael Brainard, a governor of the Fed, announced the creation of the Financial Stability Climate Committee (FSCC) in a speech at a Ceres conference. The FSCC is a systemwide committee charged with developing and implementing a program to assess and address climate-related financial risks, and to complement the work of the SCC in this area.

Apr. 9, 2021 The SEC’s Division of Examinations issued a Risk Alert that notes the risk presented by lack of standardization in the rapidly growing field of ESG products. In its examinations of investment advisers, funds, and effective practices, the division has observed deficiencies and internal control weaknesses that should be addressed.

Apr. 14, 2021 The Senate confirmed President Biden’s SEC Chair nominee, Gary Gensler, who spoke about climate risk and the importance of climate-related financial disclosures during his hearing.

Apr. 19, 2021 The Department of Treasury announced a coordinated climate policy strategy focused on three prongs: climate transition finance, climate-related economic and tax policy, and climate-related financial risks. To implement this strategy, Treasury created a Climate Hub and appointed a Climate Counselor to coordinate these efforts.

May 20, 2021 President Biden issued Executive Order 14030 requesting a Climate-Related Financial Risk Strategy, an Assessment of Climate-Related Financial Risk by Financial Regulators, and directing the Department of Labor to consider proposing a rule to suspend, revise, or rescind two rules. These rules are the “Financial Factors in Selecting Plan Investments” and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” which the agency had earlier decided not to enforce.

Aug. 31, 2021 The Treasury’s Federal Insurance Office issued a Request for Information in response to the May 20 executive order on Climate-Related Financial Risk. The office seeks comments on best methods for monitoring and assessing the climate-related risks to the insurance and financial sectors. Additionally, the office seeks input on three climate-related insurance priorities: supervision and regulation, market resilience and mitigation, and sector engagement.

Sep. 22, 2021 The SEC’s Division of Corporate Finance released a guidance document focused on climate-related disclosure under existing rules and standards. The guidance documents include a sample letter demonstrating how the agency may communicate with companies on disclosure requirements, as well as some clarifying points and additional questions.

Sept. 2021 Researchers at the New York Federal Reserve Bank developed a stress testing procedure to measure financial institutions’ resilience to climate-related risks. The procedure, titled Staff Report Number 977, introduced a measure of systemic climate risk called CRISK that quantifies institutions’ expected capital shortfall in a climate stress scenario.

Oct. 14, 2021 The Department of Labor’s Employee Benefits Security Administration released its proposed rule, “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights,” amending the Investment Duties regulation under ERISA. It clarifies how ERISA fiduciaries can consider climate change and ESG in their investment decisions. This rule responds to changes made by EBSA to these regulations in 2020 that were seen as hostile to ESG factors.

Oct. 21, 2021 In response to Biden’s E.O. 14030 on climate-related financial risk, the Financial Stability Oversight Council, chaired by the secretary of the Treasury, published a report stating that climate change is a threat to financial markets. The report included recommendations for member agencies to assess climate-related risks, build capacity and expertise, and enhance climate-related disclosures and data.

Dec. 6, 2021 Correspondence between the SEC and Honda reflected a growing trend of SEC comment letters to filing companies asking for additional disclosure related to climate change-related risks and in some cases asking companies to justify claims that certain information is immaterial to investors. Companies receiving comment letters related to climate risk disclosure include Honda, Phillips, Amazon, Comcast, and Target and more.

Mar. 21, 2022 The SEC proposed a new rule with requirements for publicly traded companies to disclose climate-related information in registration statements and periodic reports, including information regarding climate risks (such as how extreme weather and energy transitions might affect their business), and certain climate-related financial statement metrics. The regulation would also require registrants in certain cases to disclose direct greenhouse gas emissions associated with their customers and suppliers, as well as emissions associated with purchased electricity. Additionally, the proposal would require companies that advertise emissions reduction goals to detail how they plan to achieve these goals, their reliance on carbon offsets, and their progress so far.

April 5, 2022 The Federal Deposit Insurance Corporation (FDIC) requested comment on draft principles to provide a framework for managing climate-related financial risks for banks with over $100 billion in consolidated assets.

Apr. 4, 2022 The Office of Management and Budget released a report on the federal budget’s exposure to climate risk. The report highlights six climate-related financial risks that could reduce federal revenue annually by up to 7.1 percent: disaster relief, flood insurance, crop insurance, healthcare expenditures, wildland fire suppression spending, and flood risk at Federal facilities.

Apr. 8, 2022 The National Association of Insurance Commissioners approved new climate-change related risk disclosure requirements for a number of state insurance regulators.

Apr. 28, 2022 The SEC announced a lawsuit against a company for making false and misleading claims about the safety of a mine ahead of its deadly collapse in 2019. It is one of the commission’s first enforcement actions related to ESG since the launch of its Climate and ESG Task Force. According to the SEC, the company misled investors and others, including through its environment, social and governance (ESG) disclosures. 

May 18, 2022 The Fifth Circuit Court of Appeals ruled that the SEC’s use of in-house administrative law judges is unconstitutional, holding that (1) the use of in-house SEC judges violates the petitioners’ Seventh Amendment right to a jury trial, (2) the delegated legislative authority does not “provide an intelligible principle by which the SEC would exercise the delegated power,” (3) the removal process for in-house judges violates the Article II Take Care Clause. Jarkesy v. SEC, 5th Cir., No. 20-61007.

May 23, 2022 The SEC charged an investment management firm for “misstatements and omissions” about environmental, social and governance (ESG) factors in investment decisions for some of the mutual funds it managed. 

May 25, 2022 The SEC announced proposed amendments to rules and reporting forms to facilitate “consistent, comparable, and reliable information” for investors about environment, social, and governance (ESG) strategies. Under the proposed amendments, funds claiming ESG impacts would need to provide more information to show their approach and impact. For example, funds with a focus on environmental impact would need to disclose the greenhouse gas emissions of the portfolio investments.  

May 25, 2022 The SEC announced proposed amendments to Rule 35d-1 under the Investment Company Act of 1940, the fund “Names Rule,” to enhance transparency and avoid misleading investors. The SEC would update the 80 percent investment policy requirement, which requires funds with certain names to invest 80 percent of their assets in investments reflected in the fund name, to include funds with particular characteristics, including ESG investments. The proposed changes would not permit funds that consider ESG as one of many non-determinative factors to use ESG or similar terminology in their name, and doing so could be considered materially deceptive or misleading. The proposing release will be published in the Federal Register and open for comment for 60 days.

May 31, 2022 The Governmental Accounting Standards Board issued guidance to states and cities on the Intersection of Environmental, Social, and Governance Matters with Governmental Accounting Standards. The guidance reviews existing accounting standards that intersect with ESG issues to help government accountants think about how to address and report on ESG-related questions.

May – June 2022 The SEC sent letters to at least six companies questioning the “more expansive disclosure” on ESG issues that the company included in their corporate sustainability report than their 10-Ks. The SEC asked the companies whether they considered providing the same type of climate-related disclosure in both reports.

June 2, 2022 The CFTC voted unanimously to release a Request for Information for public comment on climate-related financial risk with respect to the derivative market and the underlying commodities market. 

June 2, 2022 The CFTC hosted a Voluntary Carbon Convening to discuss supply and demand for high quality carbon offsets, including data and standardization issues. 

June 15, 2022 The Basel Committee on Banking Supervision, in which the US participates, proposed a global approach for how banks should manage climate-related financial risk. 

June 30, 2022 The Treasury Department’s Federal Insurance Office requested information about property insurance availability in disaster prone areas as well as the financial risk that climate change poses to the insurance industry. 

July 28, 2022 Treasury’s Office of Financial Research unveiled its new Climate Data and Analytics Hub pilot, a tool designed to help financial regulators assess climate-related financial risks. During the pilot phase, the Federal Reserve Board of Governors and the Federal Reserve Bank of New York will have access to the tool, with the goal of providing wider access in the future. 

Sept. 21, 2022 The SEC Investor Advisory Committee endorsed the SEC’s proposed climate risk disclosure rule and specifically its proposal to require companies to disclose greenhouse gas emissions, including Scope 3 emissions from indirect sources such as supply chains. 

Sept. 29, 2022 The Federal Reserve announced that six of the largest US banks will participate in a pilot climate scenario analysis exercise to assess climate-related risks. The pilot, designed to improve firms’ ability to measure and manage climate risks, will launch in early 2023.

Oct. 3, 2022 The Financial Stability Oversight Council, part of the U.S. Department of the Treasury, established the Climate-related Financial Risk Advisory Committee (CFRAC), which is intended to further the goals of “identifying, assessing, and responding to the risks climate change poses to the financial system.” 

Oct. 19, 2022 Nineteen state attorneys general subpoenaed six major American banks for documents regarding their involvement with the Net Zero Banking Alliance, a consortium of financial institutions convened by the United Nations to further net-zero goals. 

Oct. 19, 2022 The Treasury’s Federal Insurance Office (FIO) announced plans to request information from property & casualty (P&C) insurers regarding their underwriting data on homeowners’ insurance. The FIO intends for the information to aid its “assessment of climate-related exposures and their effects on insurance availability.”

Nov. 2, 2022 The SEC adopted a final rule requiring mutual funds and other investment funds to provide more information about the proxy votes they cast on ESG and other issues. The rule directed fund managers to group each proxy vote they cast within a subject-matter category such as “Environment or climate” or “Corporate governance,” among other measures aimed at increasing investor access to information about proxy voting behavior.   

Nov. 14, 2022 Three federal agencies, including the Department of Defense, proposed a rule that would require major federal government contractors and suppliers to publicly disclose their greenhouse gas emissions and climate-related risks and set emissions-reduction targets. 

Nov. 22, 2022 The Department of Labor released a final rule allowing 401(k) managers to consider ESG factors in making investment decisions, providing for the rule to take effect on Jan. 30, 2023.

Dec. 5, 2022 The Federal Reserve released draft principles for a high-level framework for management of climate-related financial risk for financial institutions with over $100 billion in assets. The proposed guidance is “substantially similar” to guidance released by OCC and FDIC. 

Dec. 14, 2022 The Federal Trade Commission (FTC) voted to start a regulatory review of its Green Guides, which are designed to help companies avoid making misleading or deceptive environmental claims. 

Jan. 17, 2023 The Federal Reserve released its first climate scenario exercise for the six largest US banks. The banks will explore the physical risks and transition risks from a large hurricane event in the Northeastern US.

Dec. 21, 2022 The New York Department of Financial Services released a proposed rule to govern how banks and insurers “identify, measure, monitor, and control climate-related financial risks.” 

Jan. 26, 2022 25 states with Republican attorneys general sued the U.S. Department of Labor in U.S. District Court, seeking an injunction to block the rule scheduled to go into effect on Jan. 30, 2023, to allow 401(k) managers to consider ESG factors in making investment decisions. 

March 7, 2023: Treasury Secretary Janet Yellen delivered opening remarks at the first meeting of the Climate-related Financial Risk Advisory Committee (CFRAC), emphasizing that “taking climate change into account is prudent risk management.” The CFRAC, established in October, 2022, as an external advisory committee to the Treasury Department’s Financial Stability Oversight Council (FSOC), is tasked with advising the FSOC on climate-related risks to the financial system.  

March 29, 2023 The SEC announced a $55.9 million agreement with a Brazilian mining company to settle charges related to false statements that the company had made in its sustainability reports about the safety of its dams prior to a 2019 dam collapse.

June 27, 2023 The Federal Insurance Office released a report assessing climate-related risk in the insurance industry. The report assesses climate-related challenges in supervision and regulation of insurers and makes a series of recommendations for strengthening state oversight, improving climate risk-related tools, and more.

Sep. 14, 2023 California’s legislature passed two climate disclosure bills. The Climate Corporate Data Accountability Act (SB-253) would require companies that do business in California with total annual revenues over $1 billion to disclose their scope 1, 2, and 3 emissions. The Greenhouse Gases: Climate-Related Financial Risk Act (SB-261) would require companies that do business in California with total annual revenues over $500 million to disclose their climate-related financial risk. 

Sept. 19, 2023 Treasury released Principles for Net-Zero Financing & Investment, a document designed to promote consistency and credibility and encourage greater adoption of best practices related to financial institutions’ net zero commitments, with a focus on Scope 3 emissions.

Sept. 20, 2023 The SEC adopted amendments to the Investment Company Act “Names Rule” that will require fund names to more accurately reflect their portfolio. Specifically, the changes will require more funds with names that suggest particular areas of focus, including Environmental, Social, or Governance factors, to follow the 80 percent investment policy, which requires those funds to invest at least 80 percent of fund value in the specified area of investment focus.

Oct. 4, 2023 The New York Stock Exchange (NYSE) filed a notice with the SEC proposing to amend the NYSE Listed Company Manual to adopt a new listing standard Natural Asset Companies (NACs). NACs are a new class of corporations that hold the rights to the ecological performance produced by natural or working areas, such as large-scale farmlands, and have the authority to manage the areas for conservation, restoration, or sustainable management. 

Dec. 4, 2023 The CFTC released proposed guidance for voluntary carbon credit derivative contract trading intended to outline factors that may provide greater transparency in the carbon credit market. 

Jan. 30, 2024: A lawsuit was filed challenging two new California climate disclosure and financial reporting laws for requiring disclosure by qualifying public and privately-held businesses of GHG emissions and climate-related risks throughout their value chain. The plaintiffs allege SB 253 and 261 violate constitutional rights by compelling companies to engage in nonfactual, costly speech on climate change. They seek to enjoin the California Air Resources Board from taking any action to enforce the two laws.  Chamber of Com. of the U.S. v. Calif. Air Res. Bd., C.D. Cal., No. 2:24-cv-00801.

March 6, 2024 The SEC narrowly voted to release its long-awaited final climate-related risk disclosure rule, which requires public companies to report on material climate-related risks that affect the business and, for some large companies, greenhouse gas emissions, if material. The rule will be effective 60 days after publication in the Federal Register. A number of lawsuits were filed by states, industry, and environmental groups following the release of the final rule. You can read our analysis here.

March 15, 2024 The Fifth Circuit granted an administrative stay putting the rule on hold at the request of energy companies. Liberty Energy v. SEC, Docket No. 24-60109 (5th Cir.).

March 21, 2024 The Judicial Panel on Multidistrict Litigation selected the Eighth Circuit via lottery to hear a case consolidating nine circuit court challenges to the SEC’s climate-related risk disclosure rule. Iowa v. SEC, Case No. 24-01522 (8th Cir.).

April 4, 2024 After an onslaught of litigation challenging the rules, the SEC issued an administrative stay of the final rules pending judicial review of the consolidated Eighth Circuit petitions.

May 9, 2024 The Federal Reserve released the results of the first Climate Scenario Analysis conducted by the six biggest investment banks.

June 21, 2024 Petitioners submitted their briefs in the consolidated challenge to the SEC’s climate risk disclosure rule in the Eighth Circuit, including state petitioners, Chamber of Commerce and other industry petitioners, and energy producers. Iowa v. SEC, Case No. 24-01522 (8th Cir.).

June 24, 2024 Amici submitted their briefs in support of petitioners in the consolidated challenge to the SEC’s climate risk disclosure rule in the Eighth Circuit. Iowa v. SEC, Case No. 24-01522 (8th Cir.).