The United States House of Representatives has approved a bill backed by President Biden supporting the Corporate Governance Improvement and Investor Protection Act (the “Act”), HR 1187. The Act supports the efforts of the Securities and Exchange Commission ( SEC) to require every state-owned company to disclose specific climate measures in public financial statements. Currently, companies should only disclose weather risks in securities filings if they deem these risks “significant” according to the 2010 SEC guidelines.1 In an effort to increase transparency and standardize full environmental, social and governance (ESG) disclosures, the law gives the SEC, among other things, the discretion to amend securities laws in order to integrate ESG disclosure standards.

The bill requires specific climate disclosures,2 comprising:

  1. Identification, assessment of potential financial impacts and any risk management strategy related to physical and transition risks posed by climate change.
  2. A description of all corporate governance structures and processes established to identify, assess and manage climate-related risks.
  3. A description of specific actions to mitigate these risks.
  4. A description of the resilience of any public enterprise strategy to deal with climate risks.
  5. A description of how climate risk is integrated into the overall risk management strategy of the public company.

The Act also requires public companies to make additional disclosures related to diversity and employee management.

The House passed the bill by a single vote with a handful of Democrats joining all Republicans opposed to the bill. The prospects for ESG disclosure legislation in the Senate will depend on the ability of Democrats to use the budget reconciliation process to push forward broad climate legislation. The budget reconciliation process would allow a bill to be passed with only Democrat support, but it is not clear whether the Senate’s 50 Democrats would support the use of budget reconciliation or whether the limited rules of the reconciliation would allow the inclusion of an ESG disclosure provision.

Even without the enactment of an ESG disclosure law, the SEC likely has all the authority to require certain ESG disclosures. SEC Chairman Gary Gensler previously announced that the SEC plans to propose rules requiring public companies to provide certain human capital information, which was supported by the SEC’s regulatory agenda for climate change initiatives. published this month (discussed in more detail here3). This comes in the wake of the European Union forcing companies to disclose actual progress on their green commitments.

1 Link to SEC guidelines.

2 Link to the invoice.

3 Link to AG’s blog post.

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