International Sustainability Standards Board announced

In preparation for the new board, the Foundation formed a Technical Readiness Working Group (TRWG) to create prototypes to give the new board a running start in developing its first two exposure drafts. These prototypes have been released and cover:

• climate-related disclosures, building on the TCFD recommendations and SASB industry-based standards; and
• general sustainability disclosure requirements.

The ISSB will consider these prototypes in its work program. The climate-related disclosure standard is expected to be the first of a proposed suite of sustainability disclosure standards issued by the ISSB, including standards on broader sustainability topics. 

The head start provided by the TRWG means that development of these standards is likely to be accelerated, with shorter comment periods and redeliberation stages.

SEC guidance released in 2010 highlighted climate-related matters that may be relevant when considering various Regulation S-K disclosure requirements; in February this year, the SEC announced that the staff would review the extent to which registrants address the topics identified in the 2010 guidance. This was followed in September by questions to certain registrants about their climate-related disclosures.

In addition, principles-based disclosures about human capital came into effect in 2020 as part of the SEC’s modernization efforts.

In June this year, the SEC’s regulatory agenda included proposals for climate risk, human capital and cybersecurity risk disclosures. To help the staff develop proposals, then-Acting SEC Chair Allison Herren Lee issued an informal request for public comment in March that closed mid-June; the consultation mainly related to climate disclosures. 

SEC Chair Gary Gensler has spoken about the support expressed for the TCFD disclosures and their endorsement by leading ESG organizations. He noted that he had “asked staff to learn from and be inspired by these external standard-setters” but cautioned that the SEC should write rules and establish a disclosure regime appropriate for US markets.²

Although the SEC is clearly focused on the needs of US markets, this does not necessarily signal a lack of support for the work of the ISSB. In particular, consideration of the work of the TCFD is clearly in the thinking of both the SEC and the IFRS Foundation, which could mean that climate-related disclosures converge over time with a global baseline emerging.

2. Chair Gary Gensler, “Prepared Remarks Before the Principles for Responsible Investment ‘Climate and Global Financial Markets’ Webinar,” U.S. Securities and Exchange commission, July 28, 2021, https://www.sec.gov/news/speech/gensler-pri-2021-07-28

The SEC plans to issue proposals in three areas: climate change, human capital (in particular, diversity) and cybersecurity risk governance. The proposals are expected toward the end of 2021 or early 2022 (likely the latter).

In public remarks, SEC Chair Gensler has indicated that he has asked the staff to consider proposals in at least the following areas.

Climate²

• Whether the disclosures should be filed in Form 10-K
• Qualitative disclosures – e.g. how company leadership manages climate-related risks and opportunities, and how these factors feed into the company’s strategy
• Quantitative disclosures – e.g. greenhouse gas emissions, financial impacts of climate change, progress toward climate-related goals
• Whether there should be metrics for specific industries – e.g. banking, insurance, transportation
• Whether companies should provide scenario analyses on how a business might adapt to the range of possible effects of climate-related changes (e.g. physical, legal, market, economic) that it might need to contend with in the future
• Which data or metrics companies might use to inform investors about how they are meeting their emission reduction goals or jurisdictional requirements
• Whether fund managers should disclose the criteria and underlying data they use in marketing themselves as green, sustainable or low-carbon etc

Human capital³

• Workforce turnover
• Skills and development training
• Compensation and benefits
• Workforce demographics including diversity
• Health and safety

Cybersecurity risk governance⁴

• Cyber hygiene
• Incident reporting

Boardroom diversity

In addition, the SEC’s regulatory agenda includes corporate board diversity, and in August the SEC approved new NASDAQ diversity rules.

2. Chair Gary Gensler, “Prepared Remarks Before the Principles for Responsible Investment ‘Climate and Global Financial Markets’ Webinar,” U.S. Securities and Exchange commission, July 28, 2021, https://www.sec.gov/news/speech/gensler-pri-2021-07-28

3. Chair Gary Gensler, “Prepared Remarks at London City Week,” U.S. Securities and Exchange commission, June 23, 2021, https://www.sec.gov/news/speech/gensler-speech-london-city-week-062321

4. Chair Gary Gensler, “Prepared Remarks Before the Asset Management Advisory Committee,” U.S. Securities and Exchange commission, September 27, 2021, https://www.sec.gov/news/public-statement/gensler-amac-2021-09-27