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SEC to take hard stand against corporate 'greenwashing'

Dive Brief:

  • The Securities and Exchange Commission (SEC) will combat so-called greenwashing and enforce disclosure standards on environmental, social and governance (ESG) reports as vigorously as it upholds rules for other corporate reporting, SEC Commissioner Allison Herren Lee said.

  • “Companies are just churning out hundreds of pages of disclosure related to ESG right now,” Lee said Thursday in a webcast. “If we don’t have something there set up to ensure that it is, you know, sort of operating at its best capacity, then we are falling down on the job.”

  • The SEC will soon propose rules for ESG disclosure that will feature guidelines for greenhouse gas emissions (GHG), building on existing standards such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol, she said. GHG data “is key to comparability, is key to understanding transition risk,” or the cost of reducing reliance on fossil fuels.

Dive Insight:

CFOs, facing growing pressure from investors for ESG information, can expect to receive guidance soon on disclosure from both the SEC and the International Sustainability Standards Board (ISSB), a panel launched at the COP26 climate conference in Glasgow in November.

The ISSB, backed by the architects for global accounting rules, plans to release proposed standards before April and complete rules “as soon as possible” after that, according to ISSB Chair Emmanuel Faber.

The board is gathering opinions from shareholders, companies and other stakeholders. It will initially focus on climate disclosure, drawing up both thematic and industry-based requirements, according to a statement by the IFRS Foundation, which oversees the International Accounting Standards Board.

CFOs who want to report on sustainability must choose from more than15 competing sustainability reporting frameworks that vary in detail and scope.

Most U.S. citizens back efforts by regulators to require more detailed ESG reporting, according to a survey by Ceres, a non-profit advocate for sustainability.

Nearly nine out of 10 Americans (87%) support federal mandates for “disclosure on human capital and environmental impact data, making performance comparable across companies and/or industries,” Ceres found in a nationwide survey of 1,115 adults from Nov. 30 until Dec. 9.

“Support for corporate disclosure requirements is strong across various demographic groups, including political, age, and geographic breaks,” Ceres said. “Even climate, traditionally a more partisan topic, sees 87% support for mandatory disclosure.”

Lee highlighted “three touchstones” for ESG disclosure – “consistency, comparability and reliability.”

“Our roles are just aimed at getting accurate information into the markets,” said Lee, who as acting SEC chair set up the Enforcement Division’s Climate and ESG Task Force in March. “There’s a gap that we need to address when it comes to climate and ESG, so that investors can price risk, can allocate capital efficiently and can allocate capital as they see fit.”

“We will see if investors want to use that information to drive sustainable solutions,” she said. “And if companies want to respond to that, you know, by changing their practices, again, that’s up to them.

“But let’s make sure everyone’s on a level playing field in terms of the relevant data and information,” Lee said, adding that the SEC eventually plans to release standards for disclosure on board diversity and so-called human capital.

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