1 October 2021

Q&A with SEC's Allison Herren Lee

Ahead of her appearance at The Future of ESG Data conference, Commissioner Lee answers some questions about why the US Securities and Exchange Commission launched a consultation on climate reporting

Why did the SEC open a consultation on climate disclosures?

Commissioner Lee: During my tenure as acting Chair, a central priority for me was to help bring the SEC up to speed on climate and ESG, and to consider the needs of investors and our capital markets in this regard. As part of that effort, I solicited public comment on how we might go about facilitating better climate change disclosure.

Prior to that solicitation, we already had a wealth of input from investors and other market participants telling us that the SEC needs to act on climate disclosure, that true modernization of our disclosure rules must encompass climate risk – a defining feature of modern markets. To me it has been clear for some time that some regulatory involvement is needed. However, because of the importance of this subject matter, because of its complexity, and because of the diversity of views, I wanted to advance the dialogue by opening a public comment file, to move from the question of if, to the question of how, we can elicit consistent, comparable, reliable climate-related disclosures.

I wanted to advance the dialogue by opening a public comment file, to move from the question of if, to the question of how, we can elicit consistent, comparable, reliable climate-related disclosures

I’m pleased to report that we have received thousands of letters from a diverse group of commenters. From investors, issuers, and asset managers, from academics, auditors, and standard setters, from across the country and around the world. We’ve gathered a wide range of viewpoints, data, and expertise to inform the agency’s staff as they develop a recommendation for a rule proposal.

What are the climate/ESG data points that are best placed to support the ESG finance market? Are these just starting points for a much larger expansion in ESG disclosure requirements or an end in themselves?

Commissioner Lee: That’s a live question for the SEC and other regulators. What data best serves the needs of investors and our markets and can help promote efficient allocation of capital? As we think through those questions, we are fortunate to be able to learn from the important work that has already been done by voluntary standard setters, issuers, investors, and others who have sought to advance the state of climate disclosure, including the TCFD and GHG Protocol, among others.

We are able to look at the current state of disclosure and assess what data the market is using now and where there may be gaps that our rules might help fill.

With respect to climate—while I would not pre-judge what should or should not be included in any rule at this stage—an obvious data point for us to consider is GHG emissions. Even that single data set is, of course, complex. What’s more, many of the issues we would consider with respect to climate will continue to evolve as the science and our markets evolve, which points to one challenge facing us as we think about a climate disclosure regime: how do we keep our rules updated? I have no doubt about the ability of the SEC to finalize a climate disclosure rule that will serve our markets well. But how do we ensure that our rules keep pace with our rapidly evolving knowledge in this space and continue to elicit the most decision-useful data?

And not just on climate. While climate is unique in its pressing and potentially systemic nature, there is a much wider array of ESG topics that are decision-useful for investors. In that regard, as we consider the challenge of addressing these varied sustainability disclosure topics and ensuring our rules remain current, we should consider whether there might be a role for a standard setter that could help ensure our climate and other potential ESG rules are regularly updated and informed by the best and most current data.  

Is a global standard on climate/ESG reporting needed to prevent a patchwork of standards globally? If so, where is that likely to come from?

Commissioner Lee: Climate and ESG reporting is a global challenge for global markets that demands a global solution. In devising a solution, we need to balance the need for consistency across borders with the particular regulatory needs of individual jurisdictions. In that regard, I’m pleased that the IFRS Foundation in their efforts related to an International Sustainability Standards Board (ISSB) is taking a building blocks approach that would seek to establish an international baseline for sustainability reporting on which each jurisdiction could build. The SEC, through IOSCO and other international work streams, is engaged with the ISSB efforts.

Commissioner Lee will be speaking at The Future of ESG Data on 5 and 6 October: https://www.environmental-finance.com/content/events/the-future-of-esg-data-2021-virtual-conference/