Climate Risk Disclosure Act of 2021

II 117TH CONGRESS 1ST SESSION S. 1217 To amend the Securities Exchange Act of 1934 to require certain disclosures relating to climate change, and for other purposes. IN THE SENATE OF THE UNITED STATES APRIL 19, 2021 Ms. WARREN (for herself, Mr. SCHATZ, Mr. WHITEHOUSE, Mr. BLUMENTHAL, Mrs. FEINSTEIN, Mr. VAN HOLLEN, Mr. MARKEY, Ms. KLOBUCHAR, Ms. SMITH, Mrs. GILLIBRAND, Mr. MERKLEY, Mr. BENNET, Mr. CARPER, Mr. SCHUMER, and Mr. BOOKER) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Securities Exchange Act of 1934 to require certain disclosures relating to climate change, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Climate Risk Disclo- 4 sure Act of 2021’’. 5 SEC. 2. SENSE OF CONGRESS. 6 It is the sense of Congress that— 7 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 2 •S 1217 IS (1) climate change poses a significant and in- 1 creasing threat to the growth and stability of the 2 economy of the United States; 3 (2) many sectors of the economy of the United 4 States, and many businesses in the United States, 5 are exposed to climate-related risk, which may in- 6 clude exposure to— 7 (A) the physical impacts of climate change, 8 including the rise of the average global tem- 9 perature, accelerating sea-level rise, 10 desertification, ocean acidification, intensifica- 11 tion of storms, increase in heavy precipitation, 12 more frequent and intense temperature ex- 13 tremes, more severe droughts, and longer wild- 14 fire seasons; 15 (B) the economic disruptions and security 16 threats that result from the physical impacts 17 described in subparagraph (A), including con- 18 flicts over scarce resources, conditions condu- 19 cive to violent extremism, the spread of infec- 20 tious diseases, and forced migration; 21 (C) the transition impacts that result as 22 the global economy transitions to a clean and 23 renewable energy, low-emissions economy, in- 24 cluding financial impacts as climate change 25 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 3 •S 1217 IS causes fossil fuel assets to become stranded and 1 it becomes uneconomic for companies to develop 2 fossil fuel assets as policymakers act to limit 3 the worst impacts of climate change by keeping 4 the rise in average global temperature to 1.5 5 degrees Celsius above pre-industrial levels; and 6 (D) actions by Federal, State, Tribal, and 7 local governments to limit the worst effects of 8 climate change by enacting policies that keep 9 the global average surface temperature rise to 10 1.5 degrees Celsius above pre-industrial levels; 11 (3) assessing the potential impact of climate-re- 12 lated risks on national and international financial 13 systems is an urgent concern; 14 (4) companies have a duty to disclose financial 15 risks that climate change presents to their investors, 16 lenders, and insurers; 17 (5) the Securities and Exchange Commission 18 (referred to in this Act as the ‘‘Commission’’) has a 19 duty to promote a risk-informed securities market 20 that is worthy of the trust of the public as families 21 invest for their futures; 22 (6) investors, lenders, and insurers are increas- 23 ingly demanding climate risk information that is 24 consistent, comparable, reliable, and clear; 25 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 4 •S 1217 IS (7) including standardized, material climate 1 change risk and opportunity disclosure that is useful 2 for decision makers in annual reports to the Com- 3 mission will increase transparency with respect to 4 risk accumulation and exposure in financial markets; 5 (8) requiring companies to disclose climate-re- 6 lated risk exposure and risk management strategies 7 will encourage a smoother transition to a clean and 8 renewable energy, low-emissions economy and guide 9 capital allocation to mitigate, and adapt to, the ef- 10 fects of climate change and limit damages associated 11 with climate-related events and disasters; and 12 (9) a critical component in fighting climate 13 change is a transparent accounting of the risks that 14 climate change presents and the implications of con- 15 tinued inaction with respect to climate change. 16 SEC. 3. DISCLOSURES RELATING TO CLIMATE CHANGE. 17 Section 13 of the Securities Exchange Act of 1934 18 (15 U.S.C. 78m) is amended by adding at the end the 19 following: 20 ‘‘(s) DISCLOSURES RELATING TO CLIMATE 21 CHANGE.— 22 ‘‘(1) DEFINITIONS.—In this subsection: 23 ‘‘(A) 1.5 DEGREE SCENARIO.—The term 24 ‘1.5 degree scenario’ means a scenario that 25 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 5 •S 1217 IS aligns with greenhouse gas emissions pathways 1 that aim for limiting global warming to 1.5 de- 2 grees Celsius above pre-industrial levels. 3 ‘‘(B) APPROPRIATE CLIMATE PRIN- 4 CIPALS.—The term ‘appropriate climate prin- 5 cipals’ means— 6 ‘‘(i) the Administrator of the Environ- 7 mental Protection Agency; 8 ‘‘(ii) the Administrator of the Na- 9 tional Oceanic and Atmospheric Adminis- 10 tration; 11 ‘‘(iii) the Director of the Office of 12 Management and Budget; 13 ‘‘(iv) the Secretary of the Interior; 14 ‘‘(v) the Secretary of Energy; and 15 ‘‘(vi) the head of any other Federal 16 agency, as determined appropriate by the 17 Commission. 18 ‘‘(C) BASELINE SCENARIO.—The term 19 ‘baseline scenario’ means a widely-recognized 20 analysis scenario in which levels of greenhouse 21 gas emissions, as of the date on which the anal- 22 ysis is performed, continue to grow, resulting in 23 an increase in the global average temperature 24 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 6 •S 1217 IS of 1.5 degrees Celsius or more above pre-indus- 1 trial levels. 2 ‘‘(D) CARBON DIOXIDE EQUIVALENT.— 3 The term ‘carbon dioxide equivalent’ means the 4 number of metric tons of carbon dioxide emis- 5 sions with the same global warming potential as 6 1 metric ton of another greenhouse gas, as de- 7 termined under table A–1 of subpart A of part 8 98 of title 40, Code of Federal Regulations, as 9 in effect on the date of enactment of this sub- 10 section. 11 ‘‘(E) CLIMATE CHANGE.—The term ‘cli- 12 mate change’ means a change of climate that 13 is— 14 ‘‘(i) attributed directly or indirectly to 15 human activity that alters the composition 16 of the global atmosphere; and 17 ‘‘(ii) in addition to natural climate 18 variability observed over comparable time 19 periods. 20 ‘‘(F) COMMERCIAL DEVELOPMENT OF FOS- 21 SIL FUELS.—The term ‘commercial develop- 22 ment of fossil fuels’ includes— 23 ‘‘(i) exploration, extraction, proc- 24 essing, exporting, transporting, refining, 25 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 7 •S 1217 IS and any other significant action with re- 1 spect to oil, natural gas, or coal, any by- 2 product thereof, or any other solid or liq- 3 uid hydrocarbons that are commercially 4 produced; or 5 ‘‘(ii) acquiring a license for any activ- 6 ity described in clause (i). 7 ‘‘(G) COVERED ISSUER.—The term ‘cov- 8 ered issuer’ means an issuer that is required to 9 file an annual report under subsection (a) or 10 section 15(d). 11 ‘‘(H) DIRECT AND INDIRECT GREENHOUSE 12 GAS EMISSIONS.—The term ‘direct and indirect 13 greenhouse gas emissions’ includes, with respect 14 to a covered issuer— 15 ‘‘(i) all direct greenhouse gas emis- 16 sions released by the covered issuer; 17 ‘‘(ii) all indirect greenhouse gas emis- 18 sions with respect to electricity, heat, or 19 steam purchased by the covered issuer; 20 ‘‘(iii) significant indirect emissions, 21 other than the emissions described in 22 clause (ii), emitted in the value chain of 23 the covered issuer; and 24 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 8 •S 1217 IS ‘‘(iv) all indirect greenhouse gas emis- 1 sions that are attributable to assets owned 2 or managed, including assets that are par- 3 tially owned or managed, by the covered 4 issuer. 5 ‘‘(I) FOSSIL FUEL RESERVE.—The term 6 ‘fossil fuel reserve’ has the meaning given the 7 term ‘reserves’ under the final rule of the Com- 8 mission titled ‘Modernization of Oil and Gas 9 Reporting’ (74 Fed. Reg. 2158; published Jan- 10 uary 14, 2009). 11 ‘‘(J) GREENHOUSE GAS.—The term 12 ‘greenhouse gas’— 13 ‘‘(i) means carbon dioxide, 14 hydrofluorocarbons, methane, nitrous 15 oxide, perfluorocarbons, sulfur 16 hexafluoride, nitrogen triflouride, and 17 chlorofluorocarbons; 18 ‘‘(ii) includes any other 19 anthropogenically-emitted gas that the Ad- 20 ministrator of the Environmental Protec- 21 tion Agency determines, after notice and 22 comment, to contribute to climate change; 23 and 24 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 9 •S 1217 IS ‘‘(iii) includes any other 1 anthropogenically-emitted gas that the 2 Intergovernmental Panel on Climate 3 Change determines to contribute to climate 4 change. 5 ‘‘(K) GREENHOUSE GAS EMISSIONS.—The 6 term ‘greenhouse gas emissions’ means the 7 emissions of greenhouse gas, expressed in terms 8 of metric tons of carbon dioxide equivalent. 9 ‘‘(L) PHYSICAL RISKS.—The term ‘phys- 10 ical risks’ means financial risks to long-lived 11 fixed assets, locations, operations, or value 12 chains that result from exposure to physical cli- 13 mate-related effects, including— 14 ‘‘(i) financial risks to long-lived fixed 15 assets, locations, operations, or value 16 chains resulting from— 17 ‘‘(I) increased average global 18 temperatures and increased frequency 19 of temperature extremes; 20 ‘‘(II) increased severity and fre- 21 quency of extreme weather events; 22 ‘‘(III) increased flooding; 23 ‘‘(IV) sea level rise; 24 ‘‘(V) ocean acidification; 25 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 10 •S 1217 IS ‘‘(VI) increased frequency of 1 wildfires; 2 ‘‘(VII) decreased arability of 3 farmland; and 4 ‘‘(VIII) decreased availability of 5 fresh water; and 6 ‘‘(ii) any other financial risks to long- 7 lived fixed assets, locations, operations, or 8 value chains determined appropriate by the 9 Commission, in consultation with the ap- 10 propriate climate principals. 11 ‘‘(M) SOCIAL COST OF CARBON.—The term 12 ‘social cost of carbon’ means the social cost of 13 carbon, as described in the technical support 14 document entitled ‘Technical Support Docu- 15 ment: Technical Update of the Social Cost of 16 Carbon for Regulatory Impact Analysis Under 17 Executive Order 12866’, published by the Inter- 18 agency Working Group on Social Cost of Green- 19 house Gases, United States Government, in Au- 20 gust 2016 or any successor or substantially re- 21 lated estimate of the monetized damages associ- 22 ated with an incremental increase in carbon di- 23 oxide emissions in a given year. 24 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 11 •S 1217 IS ‘‘(N) TRANSITION RISKS.—The term ‘tran- 1 sition risks’ means financial risks that are at- 2 tributable to climate change mitigation and ad- 3 aptation, including efforts to reduce greenhouse 4 gas emissions and strengthen resilience to the 5 impacts of climate change, including— 6 ‘‘(i) costs relating to— 7 ‘‘(I) international treaties and 8 agreements; 9 ‘‘(II) Federal, State, and local 10 policy; 11 ‘‘(III) new technologies; 12 ‘‘(IV) changing markets; 13 ‘‘(V) reputational impacts rel- 14 evant to changing consumer behavior; 15 and 16 ‘‘(VI) litigation; and 17 ‘‘(ii) assets that may lose value or be- 18 come stranded due to any of the costs de- 19 scribed in subclauses (I) through (VI) of 20 clause (i). 21 ‘‘(O) VALUE CHAIN.—The term ‘value 22 chain’— 23 ‘‘(i) means the total lifecycle of a 24 product or service, both before and after 25 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 12 •S 1217 IS production of the product or service, as ap- 1 plicable; and 2 ‘‘(ii) may include the sourcing of ma- 3 terials, production, transportation, and dis- 4 posal with respect to the product or service 5 described in clause (i). 6 ‘‘(2) FINDINGS.—Congress finds that— 7 ‘‘(A) short-, medium-, and long-term finan- 8 cial and economic risks and opportunities relat- 9 ing to climate change, and the national and 10 global reduction of greenhouse gas emissions, 11 constitute information that issuers— 12 ‘‘(i) may reasonably expect to affect 13 shareholder decision making; and 14 ‘‘(ii) should regularly identify, evalu- 15 ate, and disclose; and 16 ‘‘(B) the disclosure of information de- 17 scribed in subparagraph (A) should— 18 ‘‘(i) identify, and evaluate— 19 ‘‘(I) material physical and transi- 20 tion risks posed by climate change; 21 and 22 ‘‘(II) the potential financial im- 23 pact of the risks described in sub- 24 clause (I); 25 VerDate Sep 11 2014 22:13 May 13, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1217.IS S1217 kjohnson on DSK79L0C42PROD with BILLS 13 •S 1217 IS ‘‘(ii) detail any implications that the 1 risks described in clause (i)(I) have on cor- 2 porate strategy; 3 ‘‘(iii) detail any board-level oversight 4 of material climate-related risks and oppor- 5 tunities; 6 ‘‘(iv) allow for intra- and cross-indus- 7 try comparison, to the extent practicable, 8 of climate-related risk exposure through 9 the inclusion of standardized industry-spe- 10 cific and sector-specific disclosure metrics, 11 as identified by the Commission, in con- 12 sultation with the appropriate climate prin- 13 cipals; 14 ‘‘(v) allow for tracking of performance 15 over time with respect to mitigating cli- 16 mate risk exposure; and 17 ‘‘(vi) incorporate a price on green- 18 house gas emissions in financial anal [Text truncated for display. 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