Choosing to “Look Up”: The Case for a Single, Mandated Climate Change Disclosure Framework

Abstract

As the Environment, Social, and Governance (ESG) movement enters the mainstream, investors are demanding more climate-related ESG disclosures from public companies so that they can determine if the companies they invest in are sustainable and resilient. On March 21, 2022, the Securities and Exchange Commission (SEC) proposed rule changes requiring companies to disclose certain climate-related risks in statements filed with the SEC. This proposal comes as no surprise given that current SEC Chairman Gary Gensler has pushed to mandate ESG disclosures via an integrated, standardized framework since his 2021 appointment. SEC actions also indicate a shift away from the status quo of varied ESG reporting approaches in favor of a single, mandated climate-related disclosure framework. For instance, on September 22, 2021, the SEC sent demand letters to various public companies asking them to provide more information on climate-related business risks and impacts. The SEC also established an ESG enforcement task force. This Note examines the history of the ESG movement through current SEC reporting requirements, focusing on the four most prominent ESG disclosure frameworks. This Note then evaluates the status quo and the advantages and disadvantages of departing therefrom in favor of a single, mandated climate-related disclosure framework. This Note argues that the proposed single, mandated climate-related disclosure framework is the preferred approach. This Note also argues that the SEC’s proposed draft rule fails to sufficiently address industry-specific disclosures and grants too much discretion to companies regarding how they report greenhouse gas emissions data.