Two recent announcements, one in the United States, and the other in the European Union, provide further evidence that securities regulators are paying closer to attention to climate change disclosure by market participants.
A recent address by Jay Clayton, Chairman of the Securities and Exchange Commission (SEC), highlighted the growing interest of the U.S. regulator regarding climate change disclosure. Clayton noted that the landscape around these issues “will continue to be complex, uncertain, multi-national/jurisdictional and dynamic.” He also said that issuers and investors will also face climate-related factors that are “substantially forward-looking” and will likely have to make estimates based on or materially influenced by climate-related factors.
Current disclosure, said Clayton, is based on the provision of currently verifiable and largely historic issuer-specific information. Because climate change disclosure may become more forward-looking in nature, he noted the requirements surrounding that type of disclosure are limited and, in many cases, it is required or provided voluntarily, the information is afforded safe-harbor protection.
“When crafting and implementing disclosure mandates and guidance,” said Clayton, “I am, and must remain, mindful that as a standard-setter, I should not be substituting my operational and
capital allocation judgments for those of issuers and investors. More generally, I believe all standard-setters should take care to stay within the bounds of their regulatory mandates.”
Meanwhile, Parliament of the European Union has arrived at a set of new rules (the taxonomy regulation) to determine which investments are to be considered environmentally and socially sustainable and which will ultimately help achieve the EU’s goal of carbon neutrality.
The taxonomy regulation spells out that the following environmental objectives should be considered when evaluating how sustainable a given economic activity is:
- climate change mitigation and adaptation;
- sustainable use and protection of water and marine resources;
- transition to a circular economy, including waste prevention and
- increasing the uptake of secondary raw materials;
- pollution prevention and control; and,
- protection and restoration of biodiversity and ecosystems.
Aside from fossil fuels that use coal or lignite, specific technologies are not blacklisted by the new rules. Sectors depending on natural gas and nuclear energy can be potentially included as part of transitional activities.
For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.
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