While the devastating effects of the global COVID-19 pandemic take center stage, another worldwide crisis “looms even larger than the pandemic and could have even more grave human and economic costs than those we have witnessed these last eight months.”[1]

Securities and Exchange Commission (SEC) Commissioner Allison Herren Lee addressed the threat of climate change on financial markets during her keynote remarks at the Practising Law Institute’s 52nd Annual Institute on Securities Regulation earlier this month.[2] Commissioner Lee—a Trump appointee—implored attendees to take climate change seriously, even while the crisis may appear to be an abstract threat to some.[3]

While recognizing that the SEC cannot regulate technology or emission limits, Lee proposed requiring public companies to report and disclose their risk of exposure to climate change—a move that could help potential investors invest more responsibly, which in turn could help mitigate climate impact.[4]

Commissioner Lee’s remarks indicated that the SEC may mandate climate-related reporting for publicly-traded companies, and that federal agencies may be taking on a larger role in climate action—which to this point has been primarily advanced by the private sector and states.

For example, almost 1,400 companies have voluntarily committed to reducing their emissions to help combat climate change.[5] CEO Larry Fink of BlackRock, the largest financial management firm in the world, has said BlackRock will require sustainability reporting and action from its customers.[6]

Public companies are already required to self-report financial information under federal law. The Securities Exchange Act of 1934[7] requires annual reports, quarterly reports, and other financial data—information anyone can find using the SEC’s EDGAR database.[8] In response to corporate scandals, since 2002 this reporting has been subject to greater scrutiny and accountability under the Sarbanes-Oxley Act.[9] But privately-held companies are not always subject to the same reporting rules as publicly traded companies.[10]

Whether the existing standard reporting forms are supplemented or a new form created to capture this climate-related data, Commissioner Lee has recognized the need to standardize reporting.[11] Whatever format the new reporting takes, it is a step towards more informed climate action in the financial sector.

[1] Allison Herren Lee, Playing the Long Game: The Intersection of Climate Change Risk and Financial Regulation, U.S. Sec. & Exch. Comm’n (Nov. 5, 2020), https://www.sec.gov/news/speech/lee-playing-long-game-110520.

[2] Id.

[3] Id.

[4] Id.

[5] Companies, We Mean Business Coalition, https://www.wemeanbusinesscoalition.org/companies/ (last visited Nov. 17, 2020).

[6] Larry Fink, A Fundamental Reshaping of Finance, BlackRock, https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter (last visited Nov. 17, 2020).

[7] 15 U.S.C. § 78a.

[8] Filings & Forms, U.S. Sec. & Exch. Comm’n, https://www.sec.gov/edgar.shtml (last visited Nov. 17, 2020).

[9] 116 Stat. 745.

[10] Going Private, Investor.gov, https://www.investor.gov/introduction-investing/investing-basics/glossary/going-private (last visited Nov. 18, 2020).

[11] Lee, supra note 1.