US investors brace for upcoming climate risk regulations
- Media Manager
- Mar 15, 2022
- 2 min read
Tearsheet - Green Finance
Written By: Iulia Ciutina
Published: March 15th, 2022
US regulators are dialing down on climate change risks and their effects on the economy, aiming to improve financial disclosure requirements on how institutions manage their climate risk exposures internally.
The SEC is working on a mandatory climate risk disclosure proposal for US capital markets, which are asking for more consistent standards as to what constitutes "green" investments and ESG.
US regulators are expected to issue new sets of disclosure requirements around climate-related risks this year, as companies and investors ask for more guidance around how to incorporate sustainability into their practices.
Over the past year, there has been an increased focus from regulators on how institutions manage their climate risk exposures internally. It all started with the current administration issuing an executive order on tackling the climate crisis early last year, leading to FSOC’s report that said climate change poses a risk to financial stability, and imposes significant costs on the US economy.
At the SEC, Chair Gary Gensler recently announced that he’s been working closely with fellow Commissioners to “work out the details of a mandatory climate risk disclosure proposal for our capital markets”.
Some key principles the SEC is taking into account are consistency, comparability, the depth of disclosures in terms of their quantitative and qualitative detail, and whether these disclosures should be filed in the 10K form that companies are already required to file.
“I believe mandatory climate risk disclosure would represent significant progress – requiring companies to assess climate risks, collect and publicly disclose relevant metrics for the first time and giving investors information they’ve needed for years. It’s essential we get this right,” Gensler said.
US bank regulatory agencies have all signaled that they're going to start incorporating climate risk into their supervisory or oversight programs, and have an expectation that banks start incorporating climate-related financial risks into their existing risk management programs, said Tracy Basinger, senior advisor at investment firm Klaros Group and former head of supervision at the Federal Reserve Bank of San Francisco.
“We're also seeing many of the larger institutions starting to hire climate experts or people with climate risk management expertise, and putting them in their risk management function, as opposed to in some sort of Corporate Social Responsibility group,” she told Tearsheet.
