ESG Risks: SEC Signals New Regulatory Focus

  • April 28, 2021
  • Quantivate

The United States Senate recently confirmed the Biden administration’s nominee for chairman of the Securities and Exchange Commission (SEC), Gary Gensler. Formerly a Goldman Sachs banker and a commodities regulator under the Obama administration, Gensler has gained a reputation for being an aggressive regulator. Many see the confirmation as setting the stage for drastic reforms in the regulatory landscape, particularly in the area of environmental, social, and governance (ESG) risks. Gensler has promised publicly to increase transparency in the agency and reduce risks within the market.

“When it comes to enforcement, Mr. Gensler has shown he has the guts to take on bad actors, no matter how big, no matter how powerful they are, and he will hold them accountable,” Senate Banking Chair Sherrod Brown stated recently to the press.

The vote, however, will only confirm Gensler to fill the chairman’s term vacated by the departing Jay Clayton, which expires in June. The Senate will again have to confirm Gensler to a five-year term through 2026 once the current term ends.

Until he has stability in his new role, many reforms will have to wait. But assuming he is re-confirmed when the current term expires, Gensler has made clear what his top priorities are: climate-related risks.

SEC Prioritizes Climate-Related and ESG Risks

The current acting SEC Chair, Allison Herren Lee, has been setting the stage to put ESG issues at the forefront, appointing a climate change czar within the agency and assembling a climate task force. The SEC’s Division of Examinations stated in its 2021 examination priorities that it will be putting a greater emphasis on ESG risks in the immediate future.

It is unclear how much the SEC will emphasize other ESG-related issues, such as diversity and inclusion, but it is clear that the agency is willing to take steps toward making climate change and climate-related risks a greater regulatory priority.

Despite constant changes in the regulatory landscape, far too many organizations are still dependent on manual processes and outdated reporting solutions. Financial institutions need to stay ahead of the curve as ESG requirements and standards evolve, preparing for the future with an integrated and automated compliance program.

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