Remarks at the PRI/LSEG Investor Action on Climate Webinar

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.