The push for publicly traded companies to disclose information on climate risks has made its way into a number of legislative proposals, including a comprehensive bill recently passed by the U.S. House of Representatives. Although investors have been indicating their desire for uniform metrics for environmental, social, and governance (“ESG”) reporting to inform investment decisions, official government-sanctioned ESG disclosure requirements remain unestablished in the United States.

Advocates argue that standardized disclosure metrics would allow investors to hold companies accountable and make informed investment decisions. In a market environment where multiple frameworks for ESG disclosure have proliferated in the private sector, the new proposed legislation would require the Securities and Exchange Commission (“SEC”) to develop specific, uniform requirements for ESG disclosure. The proposals cover a range of ESG issues, with climate risk at the forefront.

The E” of ESG

The environmental” aspect of ESG considers the quantitative and qualitative performance of companies as they manage their environmental impacts, for the purpose of helping investors distinguish between companies that may present differing financial risks as a result of environmental management practices. Environmental impacts would include, for example, companies’ contributions to declining biodiversity, pollution, resource scarcity and, of course, climate change. Companies that ignore environmental risks may find that decision extremely costly, as such dangers threaten employee safety and physical operations, potentially leading to avoidable litigation. At the very least, increasing public interest in environmental issues could lead to reputational harm. In theory, uniform disclosure requirements, with respect to environmental risk management, would be useful for investors.

Corporate Governance Improvement and Investor Protection Act

On June 16, 2021, by a vote of 215-214 (with no Republican support), the House passed H.R.1187, the Corporate Governance Improvement and Investor Protection Act.” The legislative package combines five bills on ESG issues that the House Financial Services Committee approved earlier this year:
  1. The original H.R.1187, the ESG Disclosure Simplification Act,” sponsored by Rep. Juan Vargas (D-CA), would require the issuer to disclose ESG metrics to shareholders along with a long-term business strategy and direct the Securities and Exchange Commission (SEC) to adopt rules requiring issuers to disclose ESG metrics in filings that require audited financial statements. The bill also establishes a Sustainable Financial Advisory Committee (SFAC) to provide the SEC with a report identifying policy changes that could facilitate sustainable investments.
  2. H.R.1087, the Shareholder Political Transparency Act,” sponsored by Rep. Bill Foster (D-IL), would require public companies to submit reports to the SEC and investors detailing their expenditures for political activities.
  3. H.R.1188, the Greater Accountability in Pay Act,” sponsored by Rep. Nydia Velazquez (D-NY), would require most public companies to disclose certain employee pay raise information and a comparison of executive and non-executive pay increases to each other and to the Consumer Price Index for All Urban Consumers.
  4. H.R.3007, the Disclosure of Tax Havens and Offshoring Act,” sponsored by Rep. Cynthia Axne (D-IA), would require public companies to disclose their total pre-tax profits; total amounts paid in State, Federal, and foreign taxes; and certain specific tax-related items for each of its subsidiaries, as well as on a consolidated basis.
  5. H.R.2570, the Climate Risk Disclosure Act,” sponsored by Rep. Sean Casten (D-IL), would require public companies to disclose information relating to the financial and business risks associated with climate change. The bill would also require the SEC to establish climate risk disclosure metrics and guidance.

Specifically, the Climate Risk Disclosure Act (Title IV of H.R. 1187) requires public companies to make annual disclosures related to their greenhouse gas emissions (direct and indirect) and their fossil fuel related assets. Additional climate risk related disclosures would include:
  • Physical risks to fixed assets, locations, operations, and value chains resulting from extreme weather events;
  • Financial risks related to efforts to reduce greenhouse gas emissions and increase climate change resiliency, including costs stemming from government policies, new technologies, changing markets, and litigation;
  • Processes and strategies to manage climate risks; and
  • Specific actions the company is taking to mitigate such risks.

The SEC would be responsible for issuing rules specifying the information that companies must disclose. The rules, which are to be issued within two years of enactment, would account for the costs of climate risk in a uniform and industry-specific manner – e.g., companies engaged in the commercial development of fossil fuels would be faced with additional requirements.

Rep. Casten’s Climate Risk Disclosure Act was also incorporated into House Democrats’ Climate Leadership and Environmental Action for our Nation’s (CLEAN) Future Act, a comprehensive climate proposal that could soon be marked up by the House Energy and Commerce Committee.

Additionally, prior to passage, the House adopted several amendments to H.R.1187, including language requiring disclosure related to workforce issues, corporate diversity, and imports sourced from China’s Xinjiang province given concerns related to forced labor.

Notably, the SEC has already signaled its intent to regulate climate risk disclosure, aiming to propose new corporate disclosures on climate risks by October of this year.

Senate Action on Climate Risk Disclosure

While the prospects for H.R.1187 in the closely-divided Senate are far from certain, there is growing momentum for climate risk disclosure legislation in that chamber. Earlier this year, Sen. Elizabeth Warren (D-MA) introduced S.1217, the Climate Risk Disclosure Act – the Senate companion to Rep. Casten’s bill. Correspondently, S.1217 would amend the Securities Exchange Act of 1934, adding language that would require certain disclosures relating to climate change. Sen. Warren initially introduced this bill in 2018. S.1217, which currently has 14 Democratic co-sponsors, has not yet been considered by the Senate Banking Committee.


Publicly traded companies should monitor these bills—as well as pending SEC action—in order to prepare for potential new climate risk disclosure requirements. The assessment of climate risk requires new capabilities for complex data interpretation. This kind of innovation can be helped by clearly defined governance structures, including at the senior management and board level, as well as within existing risk owners.

Summer associate Zoe Makoul assisted in the preparation of this advisory.