As reported previously, developing new ESG and climate disclosure requirements (including those relating to supply chains impacts) is one of the SEC’s key priorities, and there have been indications that proposed rule-making on the issue may be imminent.  The topic was once again raised by SEC Commissioner Allison Herren Lee this week at the 2021 ESG Disclosure Priorities Event.  In her remarks, Commissioner Lee indicated that the SEC is working on a proposed rule on ESG disclosures and reiterated that current regulations do not provide the investor community with adequate information.  She then addressed common misconceptions about current SEC regulations and explained why they do not sufficiently address ESG and climate impacts. 

First, Lee clarified that public disclosures are not automatically required simply because a fact is material — a specific duty to disclose needs to exist in order to trigger a disclosure requirement for specific material facts.  Therefore, under the current regulations, she believes disclosure of climate and ESG matters is only required when collateral to something else disclosed by the company, e.g., in order to ensure that the other disclosure is not misleading.  

Second, Lee pointed out that, although many assume that climate and ESG disclosures are already being made to the extent required under current regulations, in many cases this is not true and material information is frequently omitted.   Lee explained that initially, materiality determinations are usually made by management which typically employs higher materiality thresholds than do investors.  When the auditors and legal counsel review management’s determinations, they also do not necessarily understand investor expectations.  In addition, lawyers and accountants have an economic and psychological incentive to agree with management, particularly on close cases.  At the same time, Lee pointed out that cases of withheld material information are difficult to police because the omitted information often is not known to the SEC.  Therefore, absent a specific climate and ESG disclosure regime, investors may never obtain the ESG and climate impact related information they need to make informed investment and voting decisions.   Lee emphasized that, despite the common misconception that the SEC only requires the disclosure of material information, under the law the SEC can require disclosure of any information if it determines that doing so is in the public interest and for the protection of investors.  

Finally, Lee reiterated that climate and ESG issues are material to investors even though they may also have political and social significance.  She has specifically asked the accounting community for input on climate and ESG disclosure rules that are under development.

Key Takeaways

The prospect of SEC disclosure requirements specific to corporate climate and ESG impacts of corporate supply chains further increases the risk to companies who have not yet developed risk-based responsible sourcing, sustainability and ESG compliance programs.  Companies are well-advised to consider the efficacy of current policies, procedures, and other program elements to cover the risk of climate, social, and governance failures both in supply chains and in broader business operations.


Maria Piontkovska advises clients on reducing anti-corruption compliance risks stemming from operating business in emerging markets and handles internal investigations and related interactions with law enforcement authorities. Her practice focuses on global corporate compliance and investigations, as well as white collar criminal matters. She represents domestic and international corporate clients in a broad range of compliance matters, including criminal investigations, before the US Department of Justice, the US Securities and Exchange Commission, and other government agencies.


Reagan Demas has significant experience working on behalf of companies and investors in emerging markets and high risk jurisdictions. He has managed major legal compliance investigations for a variety of Fortune 500 companies and negotiated settlements before the US Department of Justice, US Securities and Exchange Commission, and other federal and state regulatory entities, obtaining declinations in a number of matters. He has also conducted risk assessments and due diligence in a variety of legal compliance matters for companies across industries, and has worked on the ground evaluating partnerships, investments and other business opportunities worldwide. Reagan has written and spoken extensively on corruption, business ethics, human rights-related legal obligations and emerging regulatory regimes.