Thus far in SEC Chairman Jay Clayton’s tenure, we’ve seen a decided shift toward scaling back the scope and breadth of disclosure rules and compliance costs imposed on public companies in an effort to entice more companies to go public. Needless to say, the jury is still out on whether corporate sustainability disclosure, which was a priority under the previous administration, will come into greater focus before the close of the year.
Clayton will need to balance his deregulation approach to SEC policies to include the demands of investors, who clearly want greater transparency when it comes to issues such as climate change and globalization.
In 2016, the SEC sought feedback on ways to modernize disclosures to meet investor demand; an overwhelming two-thirds of the letters received by the SEC addressed sustainability matters. “Moreover, 80 percent of those called for improved disclosure of this type of information. The volume and content of sustainability-related comment letters generated by the release shows strong support for addressing these needs,” according to a report from The Hill.
Although a number of companies have cited the potential risks around climate change regulations as they relate to financials, a growing list of businesses have embraced recent environmental initiatives.
In fact, risk factor and MD&A reporting in SEC filings are peppered with environmental-focused matters and this will likely not change, even though earlier this year President Trump announced the U.S. would officially withdraw from the Paris Agreement. The Paris Agreement is the world’s first comprehensive climate accord, which has the participation of 195 countries including the U.K., Germany, France, Russia, China and Japan.
Major corporations have put pressure on the current administration to not withdraw, stating that climate change presents both business risks and opportunities. In fact, President Trump’s announcement may have engendered an even greater allegiance to corporate sustainability initiatives, which have become a strong focal point for U.S. investors.
The conversation around climate change will undoubtedly continue in earnest next week, when the U.S. will take center stage at the first major meeting of the United Nations since President Trump’s announcement to withdraw from the Paris Accord. The outcome of the climate change meeting will no doubt spur future discussions and potential SEC guidance around corporate sustainability—and largely determine whether the U.S. will move closer to, or further away from, the Paris Agreement.