S.E.C. Is Criticized for Lax Enforcement of Climate Risk Disclosure

In 2010, the S.E.C. told companies how it expected them to address the risks posed by climate change in their regular securities filings.

Wall Street’s top regulator was not issuing a new rule. Rather, this was “interpretive guidance” on existing disclosure requirements.  The S.E.C. chairwoman at the time, Mary Schapiro, noted then that the S.E.C. was “not opining on whether the world’s climate is changing, at what pace it might be changing, or due to what causes,” but asking companies to take stock of the risks to their businesses.  Among the factors companies should address, the S.E.C. said, were legislation and regulation related to climate change, international treaties on the issue, and the physical impacts of climate change, like flood or drought.

Initially, the S.E.C. appeared to put muscle behind its guidance.  In the two years after the interpretive guidance, the S.E.C. issued 49 comment letters to companies addressing the adequacy of their climate change disclosures.  But it issued only three such letters in 2012 and none in 2013.

To advocates of more robust climate change disclosure, the impression was that the S.E.C. had taken its eye off the ball.

“They did back it up in the first few years,” said Jim Coburn, senior manager of investor programs at Ceres, a nonprofit organization that advocates sustainability in business and that has lobbied the S.E.C. on the disclosure.  “But the current chair hasn’t shown much interest in this issue.”

Some shareholders and lawmakers are trying to change that.  Last April, an alliance of 62 institutional investors wrote a letter to the S.E.C. calling for greater scrutiny of climate-related disclosures from energy companies in particular.

We are concerned that oil and gas companies are not disclosing sufficient information about several converging factors that, together, will profoundly affect the economics of the industry,” wrote the investors, which included Calpers, the California Public Employees’ Retirement System; the Connecticut state investment fund; and Calvert Investments.

In a coordinated letter sent to the S.E.C. on the same day, the New York City and New York State comptrollers called for similar accountability.  Then in October, a group of Democratic lawmakers added their voices to the debate.  In a letter to the current S.E.C. chairwoman, Mary Jo White, 35 members of Congress asked for an update on the interpretive guidance issued in 2010, using the occasion to suggest that the S.E.C. had been asleep at the wheel.

“The S.E.C. has been underreacting in the extreme,” Senator Brian Schatz, a Democrat from Hawaii and one of the lead authors of the letter, said in an interview.

At the same time, officials in New York and California are investigating whether Exxon understood the risks posed by climate change decades ago, but withheld that information from investors. Exxon denies the allegations.

The investors, comptrollers and lawmakers think that while companies should already be addressing climate change risk as part of their regular disclosures, only a minority are telling shareholders how warming oceans and extreme weather will affect their business.

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