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Remarks at the PRI/LSEG Investor Action on Climate Webinar

Washington D.C.

Oct. 20, 2021

Good morning or good afternoon depending on where you are. I want to start by thanking Principles for Responsible Investment and the London Stock Exchange Group for inviting me to speak today, and for holding this event. I also need to share the standard, but important, disclaimer that the views I express are my own and not those of the Commission or its staff.

This type of dialogue among market participants is a critical component of the larger global effort to come together to address the risk that climate change poses to capital markets and the global economy.

As we move forward on climate initiatives, we must take an approach that is both collaborative and comprehensive. Investors, issuers, standard setters, academics, regulators – we all have a role. At the SEC, our focus is on capital markets - protecting investors, maintaining fair, orderly, and efficient markets, and promoting capital formation. We don’t set emissions standards or net zero targets, we don’t implement carbon pricing, or otherwise shape energy or environmental policy. But we must work hand-in-hand with our colleagues all across government and in the private sector as we fulfill our mission.

One very important role the SEC serves is to help ensure that decision-useful information gets into the markets in a timely manner by, among other things, setting public company disclosure standards. As most of you know, our staff is actively engaged now in assessing how we can best facilitate the disclosure of consistent, comparable, and reliable climate-related information.

Fortunately, as we consider a potential climate disclosure proposal, we don’t have to start from scratch. Far from it. The quantity and quality of climate disclosure has increased significantly in the last decade or so, in large part because of the efforts of investors in seeking that disclosure, issuers in responding to investor demand, and voluntary framework and standard setters – like PRI and others – in their efforts to facilitate that interchange. We are fortunate that we can build from these efforts. This work has evolved significantly, and has now reached a point at which regulatory involvement can truly help to optimize results.

Because of this work, regulators can now pick up the baton to help achieve what a voluntary system alone cannot – that is, consistent, comparable, and reliable disclosure. Disclosure that works for investors, provides certainty for issuers, and provides fundamentally important transparency around the systemic risk posed by climate change.

As we move forward with regulatory efforts, it’s important that we continue to hear from market participants and the public, and continue to leverage the expertise and hard work that’s already been done.

That is, in part, why I sought public comment earlier this year on a potential climate disclosure proposal by the SEC. At that time, we already had significant input from investors and others urging us to act on climate disclosure, highlighting that true modernization of our disclosure rules must encompass climate risk – a defining feature of modern markets.[1]

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 best elicit climate-related disclosures. I have been pleased to see that we have received thousands of letters in response to that request.[2] As a result, we have a wide range of perspectives, data, and expertise to inform the agency’s staff, and to help us move swiftly to develop a rule proposal.

If the Commission does issue a proposal, which our Chair has indicated is forthcoming,[3] there will be a further comment period to come during which the public can react to the specifics of the proposal and help inform any final rule. I note this to emphasize the transparent and collaborative nature of this process. At every step along the way, the agency has and will engage with market participants and the public to ensure that we are proceeding carefully, deliberatively, and based on the best available data.

But the collaboration doesn’t stop there. Climate is of course a global challenge that demands a global solution. That’s why we must seek ways to collaborate across jurisdictional boundaries to promote consistency in climate-related disclosure. An important and promising international effort is the IFRS Foundation’s work on an international sustainability standards board, or the ISSB.[4] The ISSB can hopefully provide an international baseline for sustainability reporting on which individual jurisdictions can build. Such an approach would balance both the need for consistency across borders with the particular needs of individual jurisdictions. The SEC, through IOSCO and other international work streams, is engaged in efforts to assist in this work, and I look forward to continued progress on that front.

These cooperative efforts – public and private, domestic and international – are aimed mainly at one goal: to get the data out there. Those who are steering the capital that drives global economies need consistent, comparable, and reliable climate data in order to accurately price risk and efficiently allocate capital.

Let me add this point: markets are central and necessary to climate solutions, but data and greater market transparency alone will not enable capital markets to fully “solve” the problem of climate change.[5] That’s because markets are only as reliable as the incentive structure on which they are based. Because of varying estimates around the timeline for some of these risks to materialize, or the so-called “Tragedy of the Horizon,”[6] market forces and incentives may not operate optimally to shift capital today to get us where we need to be tomorrow.

That is in part why numerous market participants – trade groups, bankers, policy-makers, Nobel prize winning economists and others[7] – are of the view that putting a price on carbon through, for example, a carbon tax or other methods of requiring the internalization of climate externalities is key to this effort.

Nevertheless, better data can accomplish a great deal. After all, it’s not just investors who will benefit from the information. All policymaking should flow from reliable data as well. The U.S. has now emphasized a “whole of government” approach to climate change, making it a central consideration across the government’s domestic and foreign policy.[8] Not only will enhanced climate disclosure inform markets, it can more broadly inform the wider spectrum of climate policymaking – policymaking that deserves incisive, informed, and - importantly - swift attention.

In closing, I think it’s important to put the SEC’s role within the context of the larger issue. So let me not mince words: climate change presents an existential threat to life on the planet. While it’s important to consider this issue, as the SEC does, through the lens of the risks and opportunities in financial markets, there is a level at which that grossly underestimates what is at stake.[9]

Thus I look forward to the continued, collaborative work – globally – of investors, financial institutions, and businesses toward climate solutions. I also look forward to the work of other law and policymakers toward a comprehensive approach to confronting the climate crisis.

Thank you for having me today.

[1] See, e.g., Sustainability Accounting Standards Board,The State of Disclosure: An Analysis of the Effectiveness of Sustainability Disclosure in SEC Filingsat 4 (2016) (“Despite the fact that sustainability disclosure was a relatively minor topic of discussion in the SEC release, covering about four of its 92 pages, two-thirds of the more than 276 non-form comment letters the Commission received in response addressed sustainability-related concerns. Eighty percent of sustainability-related letters called for improved disclosure of climate related information in SEC filings, with only 10 percent of letters opposing SEC action on the matter.”). See alsoComments on Proposed Rule: Modernization of Regulation S-K Items 101, 103, and 105. The Commission received nearly 3,000 comment letters on the proposal, including a campaign that generated the submission of over 2,800 form letters asking for more disclosure on workforce development, climate, and diversity. See also Letter from Cynthia A. Williams and Jill E. Fisch(Oct. 1, 2018) (enclosing a petition for rulemaking to the SEC on standardized disclosure related to environmental, social, and governance ESG issues, signed by investors and organizations representing more than $5 trillion in assets under management).

[5] See Paul Polman, Why business cannot tackle climate change on its own, Financial Times (Dec. 1, 2019) (“Companies cannot stop runaway climate change alone and not without major reform.”); Naomi Oreskes, Without Government, the Marketplace Will Not Solve Climate Change, Scientific American (Dec. 1, 2015) (“In our markets today, people are dumping carbon dioxide into the atmosphere without paying for that privilege. This is a market failure. To correct that failure, carbon emissions must have an associated cost that reflects the toll they take on people and the environment. A price on carbon encourages individuals, innovators and investors to seek alternatives, such as solar and wind power, that do not cause carbon pollution.”).

[6] See Mark Carney, Breaking the Tragedy of the Horizon – climate change and financial stability (Sept. 29, 2015) (“The horizon for monetary policy extends out to 2-3 years. For financial stability it is a bit longer, but typically only to the outer boundaries of the credit cycle – about a decade. In other words, once climate change becomes a defining issue for financial stability, it may already be too late.”).

[7] See, e.g., Managing Climate Risk in the U.S. Financial System, Report of the Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission (Sept. 9, 2020) (“Prudent risk management calls for immediately implementing carbon pricing globally to quickly reduce GHG emissions and to try to get the planet to net-zero emissions as soon as possible while ensuring that the costs are shared equitably across society and that the distributional impacts are not regressive.”); William Nordhaus, The Climate Club, Foreign Affairs (May/June 2020) (advocating a “focus on a carbon price, a price attached to emissions of carbon dioxide and other greenhouse gases”); David Solomon, Goldman Sachs’ commercially driven plan for sustainability, Financial Times (Dec. 15, 2019) (“To give us the best chance of combating climate change, governments must put a price on the cost of carbon, whether through a cap and trade system, a carbon tax or other means. The resulting incentives will channel capital to low carbon solutions and drive innovation.”). But see Ben Ho, Time to Give Up on a Carbon Tax?, Columbia Climate School State of the Planet (Apr. 26, 2021) (“A carbon tax on its own isn’t even the first best policy option because it doesn’t target other externalities that are potentially more important than the direct damage of climate change. In particular it doesn’t do enough to encourage the benefits that come when new technologies are invented, such as the innovations that have brought the price of solar down by 90% or more in the past 10-20 years. It also does little to address the infrastructure needed for a low carbon economy — infrastructure like a smarter grid, or a network of electric vehicle charging stations. Perhaps we should be focusing on those market failures first.”).

[8] See The White House, Fact Sheet: President Biden Takes Executive Actions to Tackle the Climate Crisis at Home and Abroad, Create Jobs, and Restore Scientific Integrity Across Federal Government (Jan. 27, 2021) (“The order establishes the National Climate Task Force, assembling leaders from across 21 federal agencies and departments to enable a whole-of-government approach to combatting the climate crisis.”).

[9] See Sixth Assessment Report of the Intergovernmental Panel on Climate Change (August 2021) (“The scale of recent changes across the climate system as a whole and the present state of many aspects of the climate system are unprecedented over many centuries to many thousands of years.”); see also Patrick Bolton, Morgan Despres, Luiz Awazu Pereira da Silva, Frédéric Samama, & Romain Svartzman, Bank for International Settlements, The green swan: Central banking and financial stability in the age of climate change (Jan. 2020) (providing that climate risk “is a new type of systemic risk that involves interacting, nonlinear, fundamentally unpredictable, environmental, social, economic and geopolitical dynamics, which are irreversibly transformed by the growing concentration of greenhouse gases in the atmosphere”).

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