Mandatory disclosure is key to address climate risks

Abstract

Investors have known about climate change for decades. Yet it is only recently that several countries—including France, Japan, New Zealand, and the United Kingdom—have developed policies requiring large public companies to regularly disclose information about climate-related financial risks. In March 2022, the US Securities and Exchange Commission (SEC) proposed a climate disclosure rule that, distinctively, would affect all firms publicly traded in the United States regardless of their size or country of incorporation. With the policy’s broad scope, the large size and exceptional liquidity of the US financial market, and the SEC’s influence on securities regulations worldwide, this presents a major opportunity to standardize the way that public firms measure, report, and address climate risks. As the SEC digests a substantial number of public comments on their draft rule ahead of a planned October release of the final rule, we discuss their rationale and consider implications and opportunities for research and policy

Mandatory disclosure is key to address climate risks