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CRS Reviews SEC Disclosure Policy and Practice on Climate Risk's picture
Commentary by Steven Lofchie

The Congressional Research Service ("CRS") reviewed the SEC's current guidance on climate change risk disclosures, the application of SEC criteria for the "materiality" standard on disclosures, current SEC efforts to address climate-related impacts on global supply chain risks, and SEC related environmental, social and governance ("ESG") regulations.

The report addressed the following key areas, among others:

  • Different types of climate risks. CRS described the difference between physical risks (i.e., storms yielding direct losses) and transition risks (i.e., how changing policies or market perceptions could cause "sudden asset price drops").

  • Current SEC guidance and criteria for climate change risk disclosures. CRS discussed the SEC's 2010 Guidance regarding Disclosure Related to Climate Change and SEC Acting Chair Allison Herren Lee's directive to the Division of Corporation Finance to improve its focus on climate-related disclosures in public company filings.

  • The application of its criteria for the "materiality" standard to disclosures of material risks. CRS highlighted that the courts and the SEC have been providing materiality determinations on a case-by-case basis, employing a "principles-based approach" as opposed to "prescribing bright-line rules." CRS referred to recent cases in relation to climate risk disclosures, including Ramirez v. Exxon Mobil Corp. and People v. Exxon Mobil Corp., in which the plaintiffs argued unsuccessfully that Exxon's climate-related disclosures were materially misleading because they were not in line with Exxon's internal calculations of the relevant costs.

  • The manner in which the SEC is addressing the impact of climate change on global supply chain risks. CRS reviewed (i) a McKinsey report, which determined that supply chains have already been disrupted by climate events, and (ii) a 2016 GAO report, which concluded that SEC staff, who review routine company filings, have found it difficult to determine whether a company is failing to disclose a material climate-related supply chain risk.

  • The marketing of funds as having an ESG focus. CRS described funds that market themselves as being "ESG"-focused or supporting sustainability. CRS noted that since 2019, the Division has issued a series of examination inquiries (or "sweep exams") to investment advisers who manage investment companies that include ESG-based portfolios.

CRS raised questions as to (i) the extent to which emerging climate risks are materially important to investors, and (ii) the usefulness of current climate-related disclosures for investors.


The report provides a good balanced discussion of the present state of the law with respect to disclosures as to climate change. In its identification of climate risks, the report makes the very important distinction between climate risks that are related to events in the physical world, on the one hand, and political or public relations risks that derive from popular perception as to physical world events. While each may be important, they are not inherently identical, and each of these risks requires separate, if not entirely independent, evaluation.

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