Bank of America CEO Brian Moynihan has some advice for CFOs about climate change

For years, the burgeoning world of sustainable investing has relied on a hodgepodge of different rating systems designed to score companies on everything from their approach to the environment to how well they treat their workers. Underlying those processes has been an even messier disclosure regime where companies are able to freely release ESG information themselves or based on voluntary frameworks that often weight certain factors differently.

But regulators in Europe and the U.S. are primed to bring some standardization to those processes in the coming months, a concept that Moynihan says could be critical for issuers to get on board with and fast as investors are increasingly relying on information around climate risk and human capital as “indicators of poor governance and performance in a company.” One example of such disclosures comes from Bank of America itself, which already provides details about the diversity of its workforce based on EEO-1 data and its scope 1 and 2 emissions.

Corporate giants today frequently issue details about the environmental impact of their supply chains, warehouses, and overall businesses, often through voluntary frameworks designed by groups like the Sustainability Accounting Standards Board. In the past two years alone, the number of unique companies reporting SASB metrics annually has climbed from 117 in 2019 to 705 in 2021. Among them are Apple, Caterpillar, and Bank of America.

Moynihan has gotten involved beyond SASB, too. The Bank of America chief executive and chair of the World Economic Forum’s International Business Council has been working for more than a year now to persuade companies to adopt a standardized set of stakeholder metrics.

“How many times are you with a bunch of investors, and somebody asks you about this, and you rattle off all the things you do? And they say, ‘Well, we didn’t know you did that,’” Moynihan said at Wednesday’s event. “This gives you a chance to objectify that discussion.”

The U.S. Securities and Exchange Commission has made it no secret that it is working toward developing rule proposals to have publicly traded companies disclose everything from their environmental footprint to the risks their businesses may face from climate change to the diversity of their workforces.

Welcoming standardization

Since President Joe Biden was elected, officials at the agency have been signaling a growing appetite for more disclosures related to both climate and human capital. SEC Chair Gary Gensler even went so far as to say recently that a climate risk disclosure proposal was likely to be issued by year-end. Meanwhile, human capital disclosures have long been a source of interest for investors, and Gensler already has the regulator’s staff working to address it. In June, the SEC chair said the agency was considering a proposal that could include mandating metrics on workforce turnover, compensation, health and safety, and diversity.

“I don’t think there’s anyone on this call who’s not getting these kinds of questions these days,” former SEC commissioner and current New York University law professor Robert Jackson Jr. added during Wednesday’s CFO Collaborative. “And the SEC’s going to provide some rules of the road on how to answer them.”

Decades ago, investors began calling on public companies for clarity around how their businesses stood to be hit by the worsening threat of climate change—an effort that had been for years cast aside as the work of environmental activists. However, with newfound support in recent years from some of the biggest investors in the world like BlackRock, Vanguard, and State Street Global Advisors, the push has taken on new life.

What the SEC could bring to the table is an even greater level of consistency to the alphabet soup of current disclosure frameworks, as investors have become increasingly critical of the fact that they often cannot even compare one energy conglomerate’s environmental impact to another.

How exactly the SEC’s metrics are determined and accounted for remains unclear, though. The regulator could use a body like the Financial Accounting Standards Board, which is the SEC’s designated accounting standard setter, but climate disclosures will require a particular sort of speciality, Jackson said: “Not a ton of climate scientists at FASB these days, so I wonder a little bit about if they have the necessary expertise.” Questions do remain aplenty about the SEC’s plans. One of the biggest that remains unanswered is whether the agency will provide issuers with any sort of legal leeway when first making their climate risk disclosures, as Gensler has signaled an openness to mandating they be included in a company’s Form 10-K.

Whatever the regulator may decide on the specifics, Jackson said CFOs should be prepared for the disclosures nonetheless.

“The pipe at the SEC is limited,” Jackson told the CFO Collaborative crowd. “But [Gensler’s] going to push through as much as he can.”