August 13, 2020

Warren Urges SEC to Require Climate Risk Disclosures to Address Financial and Economic Threats Posed by Climate Change

"Investors and the public currently lack sufficient information about the threats of the climate crisis on their investments, though the risks to our economy posed by the climate crisis continue to grow." Warren's Climate Risk Disclosure Act would address many of the issues raised by investors and reduce the possibility of fossil fuel industry deception by requiring disclosures of climate-related risks

Text of Letter (PDF) 

Washington, DC - United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking Committee, sent a letter to the Securities and Exchange Commission (SEC) regarding recent reports of climate-related financial risks, and concerns raised by investors, about the lack of mandatory climate disclosures. Senator Warren urged the SEC to require public companies to disclose standard information about their climate-related risks, and take other actions required by her Climate Risk Disclosure Act, and asked the SEC to explain its views on how the Commission views the threat of climate change on the economy. 

"I write in regards to recent reports detailing both significant climate-related financial risks in the fossil fuel industry and concerns from investors about risks associated with the climate crisis," wrote Senator Warren. "It is distressing that by ignoring these climate risks, the SEC() is not fulfilling its mission to 'protect investors' and 'maintain fair, orderly, and efficient markets.' I urge you to take immediate measures, including those found in my Climate Risk Disclosure Act, to implement standard climate risk disclosures so that investors and the public can accurately assess and address climate-related environmental and financial threats."

Earlier this month, a group of institutional investors and other stakeholders, who manage around $1 trillion in assets, sent a letter to the SEC and other financial regulators regarding significant economic risks related to the climate crisis, and urged the regulators to integrate climate in its mandates. Their letter calls on the SEC to "implement a broader range of actions to explicitly integrate climate change across SEC mandates" and states, "(s)uch actions are needed to protect the economy from any further disruptive shocks."A recent report also stated that a lack of climate risk disclosure provides perverse incentives for fossil fuel companies to mislead investors and the public about their climate risks. 

In her letter, Senator Warren notes that her bill, the Climate Risk Disclosure Act, would require disclosures of information about climate-related risks, addressing many of the concerns raised by investors and reducing the possibility of deception about these risks. These disclosures would include: 

·       Companies' direct and indirect greenhouse gas emissions;  

·       The total amount of assets related to fossil fuel that companies own or manage;  

·       How companies' valuations would be affected if climate change continues at its current pace or if policymakers successfully restrict greenhouse emissions to meet the 1.5 degrees Celsius above pre-industrial levels goal in the Paris Agreement; and  

·       Companies' risk management strategies related to the physical and transition risks posed by the climate crisis.

The Senator also notes that while her legislation would require these disclosures, the SEC does not need new legislative authority to do so: the Commission can require them using its current authority under Section 13 of the Securities Exchange Act of 1934.

Senator Warren has requested a response to her letter no later than August 26, 2020. 

In April, Senator Warren submitted a public comment letter to the SEC regarding a proposed rule to amend disclosure and reporting requirements for publicly traded companies under Regulation S-K. In the letter, she expressed significant concerns that the SEC was not taking necessary measures to include climate disclosure provisions particularly given climate change's impact on the economy as well as a 2018 Government Accountability Office report that found that "(i)impacts from a changing climate can pose serious risks to the global economy and affect many economic sectors" and that "SEC reviewers may not have access to the detailed information that companies use to arrive at their determination of whether risks, including climate-related risks, must be disclosed in their SEC filings." While the SEC declined to improve required disclosures through climate risk reporting, some of the concerns that Senator Warren raised have been shared by major institutional investors, nonprofit organizations, and other stakeholders.

In May, Senator Warren also submitted a comment letter urging the Commodity Futures Trading Commission subcommittee to recommend strong requirements for market regulations to incorporate physical and transition risks associated with the climate crisis. Senator Warren urged the subcommittee to use the Climate Risk Disclosure Act as a framework for its recommendations. In April, Senator Warren submitted a comment letter to the SEC expressing concerns with the agency's lack of climate risk reporting requirements in SEC's proposed disclosure rule. Last year, Senator Warren and Representative Sean Casten led their colleagues in introducing the Climate Risk Disclosure Act of 2019 to require public companies to disclose critical information about their exposure to climate-related risks.