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The SEC’s Agenda – ESG Tops the List

On June 11, the Office of Management and Budget’s Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions. This government-wide list includes the SEC’s rulemaking agenda. As the SEC’s accompanying press release and related remarks of Chair Gensler make clear, mandatory public company environmental, social, and governance (ESG) disclosure is the SEC’s top priority.


The first topic listed in the SEC’s rulemaking agenda press release is “[d]isclosure relating to climate risk, human capital, including workforce diversity and corporate board diversity, and cybersecurity risk.” Listed below are the five specific rulemaking projects on the SEC’s published agenda that relate to public company disclosure on these issues, along with the SEC’s description of each project:

  • Corporate Board Diversity. The Division is considering recommending that the Commission propose rule amendments to enhance registrant disclosures about the diversity of board members and nominees.

  • Disclosure of Payments by Resource Extraction Issuers. The Division is considering recommending that the Commission review the rules under Section 1504 of the Dodd-Frank Act to determine if additional amendments might be appropriate. (Section 1504 requires SEC-reporting companies that engage in resource extraction to disclose to the SEC payments made to the federal government or foreign governments for the commercial development of oil, natural gas, or minerals. See If at First You Don’t Succeed: SEC Adopts Revised Resource Extraction Disclosure Rule, December 2020 Update.).

  • Climate Change Disclosure. The Division is considering recommending that the Commission propose rule amendments to enhance registrant disclosures regarding issuers’ climate-related risks and opportunities.

  • Human Capital Management Disclosure. The Division is considering recommending that the Commission propose rule amendments to enhance registrant disclosures regarding human capital management.

  • Cybersecurity Risk Governance. The Division is considering recommending that the Commission propose rule amendments to enhance issuer disclosures regarding cybersecurity risk governance.

The SEC classifies each of these projects as at the “proposed rule stage.” The Division referenced in these descriptions is the SEC’s Division of Corporation Finance.


In a June 23 speech at London City Week, Chair Gensler expanded on his plans with respect to climate change and human capital management disclosure. As to climate, he noted that the Commission had received over 400 letters in response to a request for comment on climate change disclosure Acting Chair Lee issued last Spring. Chair Gensler added:


“Today, investors increasingly want to understand the climate risks of issuers. Investors representing literally tens of trillions of dollars of assets under management are looking for consistent, comparable, decision-useful information to determine whether to invest, sell, or make a proxy vote one way or another.


“I’ve asked staff for recommendations for our consideration around governance, strategy, and risk management related to climate risk. In addition, staff are looking into a range of specific metrics, such as greenhouse gas emissions, to determine which are most relevant to investors in our markets.”


He also suggested that the Commission may require companies that make commitments or forward-looking statements with respect to climate change, or that operate in countries that impose climate-related targets, to make ongoing disclosures concerning their progress.


As to human capital management, Gensler said:


“[I]nvestors have said that they want to better understand one of the most critical assets of a company: its people. To that end, I’ve asked staff to propose recommendations for the Commission’s consideration on human capital disclosure.


“This builds on past agency work and could include a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety.”


Comment: While Chairman Gensler is clearly committed to disclosure rulemaking on climate change, human resources, and certain other ESG topics, these initiatives will undoubtedly be controversial and unlikely to have unanimous Commission support. In particular, Commissioner Hester Peirce has been an outspoken skeptic of inclusion of ESG topics in the SEC’s disclosure framework. See, e.g., Chocolate-Covered Cicadas, Remarks before the Brookings Institution (July 20, 2021) (“People want hard data to allow apples to apples comparisons. The natural desire for ESG certainty, however, runs into the many real-life uncertainties and complications that characterize the overflowing ESG bucket. Any ESG rulemaking will have to confront these difficult realities.” [footnotes omitted])


It is virtually certain that the SEC will propose a range of mandatory ESG disclosures before the end of this year. As noted in prior Updates, it also seems inevitable that oversight of these disclosures will become an important aspect of the audit committee’s work. See, e.g., Climate Change is Rapidly Becoming an SEC Priority, March-April 2021 Update and What is the Audit Committee’s Role in ESG Oversight?, December 2020 Update. Audit committees should pay close attention to the SEC’s specific proposals when they appear and discuss with management the implications for the company’s information systems and disclosure controls and procedures.

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