3 An Evaluation of the Effectiveness of Sec Oversight of Climate Change Disclosures: An Analysis of Comment Letters

The United States Securities and Exchange Commission (SEC) issued an interpretative release ostensibly mandating the disclosure of the impact that climate change may have on the registrant. One means of enforcement for this release is through the use of comment letters. Prior empirical studies have supported the argument that the SEC oversight through issuing comment letters is effective in enhancing the quality of firms’ disclosures ( Asthana & Boone, 2009 ; Johnston & Petacchi, 2017). With a total of 27 comment letter cases (34 comments based on the topics) regarding climate change disclosure, we do not find clear evidence strongly supporting that the SEC implements its oversight process through systematic procedures and that SEC comment letters enhance the quality of firms’ climate change disclosure. Although some firms responded to the comments proactively, qualitative analysis reveals that the firm’s revisions were not sufficient to provide useful information for market participants in general. The overall finding suggests that the current oversight mechanism for climate change disclosure needs to be significantly improved to enhance the quality of firms’ climate change disclosure.