Today’s proposal is most notable for what it does not do: make any attempt to address investors’ need for standardized disclosure on climate change risk. The Commission last addressed climate change disclosure in 2010.[1] In that guidance we identified four existing items in Regulation S-K that may require disclosure related to climate change: description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations, or MD&A. We have now proposed to “modernize” every one of these four items without mentioning climate change or even asking a single question about its relevance to these disclosures.[2]

Much has changed in the last decade with respect to what we know about climate change and the financial risks it creates for global markets. The science is largely undisputed and the effects increasingly visible and dire;[3] the looming economic threat to markets worldwide is more and more apparent;[4] investors have increased their demands on companies and regulators for consistent, reliable, and comparable disclosures,[5] and more companies understand these risks and have responded;[6] voluntary reporting standards have proliferated;[7] major legislation has been introduced,[8] and regulators around the globe are taking action.[9]

Perhaps most importantly in terms of SEC attention, investors are overwhelmingly telling us, through comment letters and petitions for rulemaking, that they need consistent, reliable, and comparable disclosures of the risks and opportunities related to sustainability measures, particularly climate risk.[10] Investors have been clear that this information is material to their decision-making process, and a growing body of research confirms that.[11] And MD&A is uniquely suited to disclosures related to climate risk; it provides a lens through which investors can assess the perspective of the stewards of their investment capital on this complex and critical issue.

It is also clear that the broad, principles-based “materiality” standard has not produced sufficient disclosure to ensure that investors are getting the information they need—that is, disclosures that are consistent, reliable, and comparable. What’s more, the agency’s routine disclosure review process could be used to improve disclosure under the materiality standard, but in recent years there’s been minimal comment on climate disclosure.[12] Indeed, investors and shareholders have undertaken an arguably unprecedented and massive campaign to obtain climate-related disclosure from issuers.[13] As a result, most large public companies now provide some sustainability disclosure, including in reports separate and apart from the SEC’s required disclosure regime, that provide some of the information sought by investors.[14] But these voluntary disclosures, while a welcome development, are no substitute for Commission action for a number of reasons.

First, without a mandatory standardized framework, not all issuers will disclose, and disclosure will continue to vary greatly by issuer, making it difficult if not impossible for investors to compare companies.[15]

Second, the proliferation of voluntary standards and principles—and specific requests from numerous investors—put significant and sometimes competing demands on issuers, creating workstreams and costs that could be simplified and mitigated by uniform standards.[16]

Third, significant questions exist regarding the reliability of the information disclosed in these reports. Such disclosures may lack sufficient third party verification,[17] and also may leave investors with inadequate remedies for inaccurate and incomplete disclosures.[18]

What is the right regulatory approach to this issue? How much disclosure is needed and where should it be made? Are there particular metrics that should be required? What’s the right balance between line-item and principles-based disclosure? How should disclosures accommodate sector-specific reporting? How and to what extent could we leverage existing voluntary frameworks?

These are important and challenging questions to address. But we have not engaged in that discussion at all even as we update the very provisions that we’ve said may implicate climate change disclosure. We purport to modernize, without mentioning what may be the single most momentous risk to face markets since the financial crisis. Where we should be showing leadership, we are conspicuously silent.[19] In so doing, we risk falling behind international efforts and putting US companies at a competitive disadvantage globally.

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In addition to my overarching concern regarding climate risk disclosures, I note that today’s proposal would eliminate significant disclosure items,[20] while laudably enhancing others.[21] And, as with our last Regulation S-K proposal, today’s proposal heavily favors a principles-based approach rather than balancing the use of principles with line-item disclosure.[22] I continue to be concerned that the increased flexibility and discretion that this approach affords company executives may result in significant costs to investors—both if materiality is misapplied and through the loss of important comparability in disclosure.[23] I hope we will receive robust comment on these issues, as well as on climate risk disclosures.

Finally, as always, it is quite clear to me that our staff has done thoughtful and diligent work in putting together today’s proposals. I’m grateful for their continued dedication, and respectful of their deep expertise and experience.[24] My objection is to the policy choice we make as a Commission to ignore the challenge of disclosure around climate change risk rather than to begin the difficult process of confronting it. As a result, I cannot support the proposal.

I am, however, pleased to see Chairman Clayton discussing his views on climate-related disclosure in his statement today. I am hopeful we can work together on this issue going forward.