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Virtual Remarks at the Center for American Progress and Sierra Club: Down the Rabbit Hole of Climate Pledges

Dec. 14, 2021

Thank you Daniella [Gibbs Léger], I am thrilled to be here today. And I want to commend the Center for American Progress and the Sierra Club for the hard work and dedication behind the important research that is being recognized today. Climate change is a crisis that poses an existential threat to our society, and our capital markets will not escape the impact.[1] But before I continue, I must give my standard disclaimer that the views I express are my own and do not necessarily reflect the views of the Commission or its staff.

Net-Zero Pledges

In my role at the Securities and Exchange Commission, my staff and I monitor corporate disclosures and announcements. In other words, like you all, I pay attention to what companies are saying both to the SEC, but also publicly on their website or on social media. In the months and days leading up to COP26, I noted, in particular, many public companies announcing net-zero emission pledges.[2] In fact, recent data show a significant percentage of publicly traded companies around the world have committed to a net-zero strategy.[3] This is, ostensibly, good news. Yet, when I dig a bit deeper, it is sometimes unclear to me how companies will achieve these goals.[4] Nor is it clear that companies will provide investors with the information they need to assess the merits of these pledges and monitor their implementation over time.[5] Investors have noted the importance of understanding how the pledges are being implemented this year, 5 years from now, and 10 years from now; rather than simply waiting to see if, 30 years from now, the goal of net-zero emissions comes to fruition.[6] That is too late. So while net-zero emissions pledges are an important step forward, they underscore the loud, repeated, and sustained calls for decision-useful metrics – metrics calculated using reliable and comparable methodologies that enable investors to decide whether the companies mean what they say.[7] That is a core purpose of the SEC’s disclosure obligations.[8]

In thinking about corporate disclosures, net-zero pledges implicate several other important issues. One in particular is political spending. Without disclosures on political spending, executives may spend shareholder money in ways that contradict their public commitments and statements. After the Paris Climate Accords, a number of public companies went on the record in support of the Accords. However, questions remain about whether those companies continue to make political contributions that support opposition to the Accords.[9] And this is just one example.[10] A majority of American shareholders acknowledge that corporate political spending is done at the behest of the executive’s interests, rather than for investors.[11] With that level of investor support and repeated calls to action from academics,[12] policymakers,[13] and experts,[14]  it is an issue that should be addressed.[15] 

Accurate and reliable climate metrics are not only important for investors’ evaluation of sustainability efforts or how companies are spending shareholder money on politics, it is also critical for assessing fundamental and traditional corporate governance matters, like executive compensation. Recent surveys indicate that more executive compensation is being linked to “sustainability performance.”[16] Linking executive pay to achieving ESG or sustainability-related goals can be a positive alignment of incentives. However, without reliable and consistent disclosures about those ESG targets, I wonder whether investors and Boards have the tools to accurately assess if such targets have been met and if that alignment between executive pay and ESG targets has been achieved.

Given these concerns, among others, I am pleased the SEC currently has a climate change disclosure rulemaking on our regulatory agenda. Commissioner Allison Lee, who was then acting Chair, opened a request for information earlier this year that has yielded valuable and important data and input from the public. As I reviewed that comment file with my staff, it became clear that there is significant investor demand for comparable, reliable, and decision-useful climate disclosures. Investors and market participants understand that climate risk poses a threat that is profoundly impacting our capital markets today and will continue to do so in the future. As the SEC advances this rulemaking, it is critical that you engage with us and provide us with the detailed, evidence driven, and well-reasoned research you have produced here today. The staff of the SEC are some of the most dedicated and exceptional experts I have had the privilege to work with. And to help us meet our obligations under the rulemaking process, they consider and grapple with data submitted to the comment file, including submissions like your research.[17] The more detailed and data driven the rationale that undergirds a policy position the more calibrated and meaningful our policies will be. 

Private Markets

Finally, while the importance of disclosure in the public markets cannot be overstated, the lack of similar information in the private markets poses its own obstacles. There is no doubt that America’s public markets are the deepest, most liquid, and most dynamic in the world. And the widespread participation in and reliance on them speaks for itself. That being said, private markets are a reality of our financial system and one into which the SEC has significantly less visibility.[18] As you work on and advocate for policy to encourage divestment from carbon intensive activity, it is critical to consider the growing expansion of the private markets and where the capital that fuels those markets originates.[19]   

The SEC has its work cut out for it as well. We should consider the tools we have at our disposal to address these concerns.[20] However, it is possible that we do not have everything we will need.[21] Historically, Congress has acted when the opacity of the private markets turns into darkness.[22]

As we all work to shine a light on these risks to our financial system and formulate plans to address them, we should also work to ensure that the externalities high-carbon emitters put on our environment and in our capital markets do not find relative safe haven in areas of darkness, least resistance, and lowest cost.

I want to thank you again for having me and for your tireless and committed work.


[1] See, e.g., Sarah Kaplan, Crucial Antarctic Ice Shelf Could Fail Within Five Years, Scientists Say, Wash. Post (Dec. 13, 2021).

[2] The research presented shows that many net-zero pledges in the financial sector lacked concrete targets or timelines, failed to directly address banks support of fossil fuel companies, and relied on watered down “intensity” targets on emissions instead of absolute targets.

[3] See Net Zero Tracker, Press Release, Post COP26 Snapshot (last visited Dec. 13, 2021) (622 of the 2,000 largest of largest public companies around the globe have made such pledges).

[4] It is sometimes unclear to me what policies and procedures companies have to manage and implement these goals. See, e.g., Albert Carrillo Pineda et. al., Foundations for Science-Based Net-Zero Target Setting in the Corporate Sector, Science Based Targets (Sept. 2020) (“While corporate net-zero targets are often treated as equivalent and assumed to have comparable ambition, when examining them in detail significant differences can be found amongst them.”); Paasha Mahdavi et al., Using Earnings Calls to Understand the Political Behavior of Major Polluters, Global Environmental Politics (forthcoming) (“[There may be] cause for skepticism about the proliferation of voluntary climate pledges on the part of oil and gas firms.”); Eloise Barry, As More Companies Make Net-Zero Pledges, Some Aren’t as Good as They Sound, Time (Nov. 15, 2021); Laurie Goering, Greenwash or Lifeline? Tough Rules Needed for Credible Net-Zero Plans, Reuters (June 28, 2021). Internal controls play a crucial role in ensuring corporate disclosures are consistent and reliable. See Caroline Crenshaw, Commissioner, Sec. & Exch. Comm’n, Remarks at the PepsiCo-PwC CPE Conference: Controlling Internal Controls (Nov. 16, 2021) (internal controls are “vital to identifying risks to the financial statements so leadership can manage them and prepare…disclosures accordingly”).

[5] See sources cited supra note 4.

[6] See, e.g., The Investor Agenda, Investor Climate Action Plans, Expectations Ladder, at 6 (May 2021); Publish What You Pay, Comment Letter on Climate Change Disclosures (June 11, 2020) (“Today’s investors and lenders seek to track emissions to measure and hold companies accountable for promised reductions, in order to arrest both specific and systemic collapses in asset values and businesses. They desire clarity as to whether management’s capital expenditures are consistent with announced climate strategies, both in substance and magnitude. To do this, they want a standardized tool to compare how companies plan to contribute to and survive in a net-zero economy. And they want honesty about how claims about net-zero commitments are being met. Investors and lenders want this information to both protect their investments in (or loans to) individual companies as well as to protect their portfolios from the systemic risks of climate change.”).

[7] See Crenshaw, supra note 4 (“More than 550 unique comment letters were submitted in response to the then Acting Chair Lee’s call for information. Three out of every four of these responses support mandatory climate disclosure rules.”)

[8] As with all disclosures, companies should carefully consider whether the information they include in sustainability reports or on their websites or social media, including information related to net-zero pledges, should be included in their reporting that is filed with the SEC. See Staff, Sec. & Exch’h Comm’n, Sample Letter to Companies Regarding Climate Change Disclosures (Sept. 2021).

[10] See, e.g., Caroline Crenshaw & Michael E. Porter, Transparency and the Future of Corporate Political Spending, Harv. L. Sch. Forum Corp. Gov (Mar. 15, 2021) (noting commitments from companies to halt campaign contributions to certain elected officials after the siege on the Capitol on Jan. 6, 2021 and also noting the hundreds of millions of dollars pharmaceutical companies to lobby for weakened federal and state opioid regulations).

[11] See Mason-Dixon Polling & Research, Corporate Political Spending: A Survey of American Shareholders (2006) (finding that some 73% of American shareholders believe that corporate political spending is undertaken to advance the, private interests of executives rather than the interests of the company).

[12] See Committee on Disclosure of Corporate Political Spending, Petition for Rulemaking (Aug. 3, 2011).

[14] See Freed, supra note 10.

[15]However, as many of you know, the SEC’s funding is conditioned on not finalizing a rule that requires disclosure of corporate political spending. See Consolidated Appropriations Act, 2021, H.R. 133, Pub. Law No. 116-260, Sec. 631 (“None of the funds made available by this Act shall be used by the Securities and Exchange Commission to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.”).

[16] See, e.g., Janice Koors, Executive Compensation and ESG, Harv. L. Sch. Forum Corp. Gov. (Sept. 10, 2019).

[17] The SEC is required, under the Administrative Procedures Act, to consider the relevant data, views, or arguments submitted after notice of the proposed rulemaking. See Administrative Procedures Act, 5 U.S.C. § 553.

[18] See, e.g., Caroline Crenshaw, Commissioner, Sec. & Exch. Comm’n, Statement on Harmonization of Securities Offering Exemptions (Nov. 2, 2020) (noting that “because private markets are so opaque” there is not sufficient data to calibrate our regulations around exempt offerings but noting more generally about private markets that the opaqueness “highlights a persistent problem with our approach to the private markets, in that issuers do not report the data needed to allow us to study them and their results, and thereby develop appropriate regulatory strategies”)

[19] To be very clear, this is not a caution against taking appropriate steps in the public market. Rather, a recognition of the difficulties of solving this problem holistically. 

[20] For example, we do have three rulemakings on our regulatory agenda to address issues in the private markets. See Securities and Exchange Commission. See Fall 2021 Agency Rule List (Rule 144 Holding Period and Form 144, Regulation D and Form D Improvements, Revisions to Definition of Securities Held of Record).

[21] See, e.g., Allison Herren Lee, Commissioner, Sec. & Exch. Comm’n, Going Dark: The Growth of Private Markets and the Impact on Investors and the Economy (Oct. 12, 2021) (outlining events that have led to the exponential growth of the private markets and suggesting issues for the SEC to consider when thinking about the public-private divide).

[22] Id. (noting that Congress acted to shine a light in creating the Securities Act and Exchange Act and then again in the early 1960s as the over-the-counter markets grew by commissioning a study that was implemented through the enactment of Section 12(g) of the Exchange Act).

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