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SEC creates Climate and ESG Task Force; begins reviews of corporate reports

04 March 2021 Kevin Adler

The Securities and Exchange Commission (SEC) announced on 4 March the creation of a Climate and ESG Task Force within its enforcement division, continuing the Biden administration's policy of increasing pressure on corporations to report on their environmental, social, and governance performance.

"Consistent with increasing investor focus and reliance on climate and ESG-related disclosure and investment, the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct," the SEC's announcement said. "The task force will also coordinate the effective use of Division resources, including through the use of sophisticated data analysis to mine and assess information across registrants, to identify potential violations."

Under Acting SEC Chairwoman Allison Herren Lee, the SEC has started to review climate disclosure reports filed by companies in compliance with its 2010 guidance, which acknowledged climate risk as a material risk for the first time. The SEC's review has been seen by some investment groups as the first step towards mandatory ESG reporting. However, it's more likely it would be a decision left in the hands of Gary Gensler, if he is confirmed as the new chair of the SEC.

But Lee said during a 1 March discussion at CERAWeek by IHS Markit that reports to date have been "inadequate." Lee also said the Commission has been reaching out to international counterparts to "work … towards a common set of principles that can serve as a baseline" for ESG disclosures.

Material gaps or misstatements

The initial focus of reviews "will be to identify any material gaps or misstatements in issuers' disclosure of climate risks under existing rules," the SEC said.

The task force will also analyze disclosure and compliance issues relating to investment advisers' and funds' ESG strategies. "Proactively addressing emerging disclosure gaps that threaten investors and the market has always been core to the SEC's mission," said Acting Deputy Director of Enforcement Kelly Gibson, who will lead the task force.

Posted 04 March 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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