By Daniel Reich
On Sept. 4, 10 Democratic presidential hopefuls will take the stage at a CNN “town hall” on the climate crisis. Four of those candidates recently sponsored the Senate’s Climate Risk Disclosure Act of 2019, which requires every public company to disclose business risks from climate change to the Securities and Exchange Commission (SEC). This is a laudable effort: investors (and everyone else) can’t navigate the climate crisis if they don’t understand what’s at stake.
However, it’s not enough. SEC regulations that require disclosure of climate risks are already on the books; what’s lacking is the will to enforce them. While the act improves the data reported, it has no provisions for enforcement. That’s also the problem with the existing regulations: The SEC has done nothing to enforce them.
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Part of the problem is that climate disclosures rely on businesses to assess their own risks. In 2018, the Government Accounting Office (GAO) conducted an audit of the SEC’s efforts to clarify climate change disclosures. The audit found that the SEC staff evaluating disclosures relied solely on the information provided by the companies and did not have the authority to obtain additional information. But businesses (and SEC staff) typically lack the scientific expertise to assess climate risks. And businesses have a powerful reason not to try: an honest accounting of risk might scare off investors.
There’s a better way to do this. The Environmental Protection Agency (EPA) should support the SEC’s efforts relating to climate risk disclosure. The EPA has invaluable data on climate change and other environmental risks, which — together with the SEC’s understanding of business realities — could provide investors with a clear-eyed assessment of opportunities and dangers.
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