Climate change, a.k.a. global warming, and environmental, social, and governance (ESG) concerns are getting real for financial services firms, particularly those working in securities trading. This is also true for the regulators overseeing them such as the SEC.
A case in point is our story this week about a $247 billion pension fund, the New York State Common Retirement Fund, that has persuaded five portfolio companies, including Domino’s Pizza, to establish greenhouse gas targets.
New York State Comptroller Thomas P. DiNapoli, the pension fund’s trustee, reports that these portfolio companies have “set targets to reduce their greenhouse gas emissions (GHG), adopt new energy efficiency measures and increase their use of renewable energy,” according to a prepared statement.
The heat is on in other parts of the industry to make climate change and ESG criteria parts of the investment equation.
Key financial services associations have banded together to push for climate change mitigation efforts https://bit.ly/3pR9wWa, and the Futures Industry Association (FIA) sent President Joe Biden a letter about the matter: https://bit.ly/3pvadnZ. Biden himself has made climate change concerns a major policy objective for all members of his cabinet.
At another level, asset management giant BlackRock is onboard with the Aladdin Climate software application, which analyzes climate risk and opportunities “at the security level,” and tracks policy changes, technology, and energy supply for specific investments: https://bit.ly/36z3tiu.
And now Biden’s SEC is getting into the game.
The regulator recently announced an enforcement task force whose main focus will be how to police climate change and ESG misconduct. The new Climate and ESG Task Force is part of the SEC Division of Enforcement and will be overseen by Kelly L. Gibson, the acting deputy director of enforcement. Previously, Gibson was director of the SEC’s Philadelphia Regional Office, overseeing “approximately 160 enforcement attorneys, accountants, and investigators,” according to the SEC. She joined the SEC in 2008 as a staff attorney in the Division of Enforcement in the Philadelphia office.
The division-wide effort will involve “22 members drawn from the SEC’s headquarters, regional offices, and enforcement specialized units,” according to the SEC. “Consistent with increasing investor focus and reliance on climate and ESG-related disclosure and investment, the Climate and ESG Task Force will develop initiatives to proactively identify ESG-related misconduct,” officials say.
The task force will also tap into division resources such as “sophisticated data analysis to mine and assess information across registrants, to identify potential violations,” officials add.
“The initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules. The task force will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies. Its work will complement the agency’s other initiatives in this area,” according to the SEC, which cites the recent appointment of Satyam Khanna as an SEC senior policy advisor for Climate and ESG.
To be effective, the task force will need to work closely with other SEC divisions and offices such as the divisions of corporation finance, investment management, and examinations, the SEC stresses.
“Proactively addressing emerging disclosure gaps that threaten investors and the market has always been core to the SEC’s mission,” Gibson says in a prepared statement. “This task force brings together a broad array of experience and expertise, which will allow us to better police the market, pursue misconduct, and protect investors.”
Whistleblowers may play a key role in the SEC’s efforts as the new task force “will evaluate and pursue tips, referrals, and whistleblower complaints on ESG-related issues, and provide expertise and insight to teams working on ESG-related matters across the Division.”
Tips, referrals, and whistleblower complaints can be submitted here: https://www.sec.gov/tcr.
Two SEC commissioners also provide more background for the regulator’s recent climate change efforts via a statement issued March 4, “Enhancing Focus on the SEC’s Enhanced Climate Change Efforts,” that can be found here: http://bit.ly/2OHaJm0 .