US SEC will not charge top funds over climate concerns but warns of disclosure obligations

The US Securities and Exchange Commission (SEC) has decided not to charge major asset managers for their involvement with a climate group ahead of ExxonMobil's 2021 shareholder meeting. However, the SEC has warned that firms must review their regulatory obligations before the next year's proxy season. This decision is a partial victory for the firms, including BlackRock, Vanguard, and State Street, as they will not face financial penalties, but it also raises concerns about more expensive reporting requirements.

The SEC's decision comes after BlackRock, Vanguard, and State Street supported dissident directors in front of ExxonMobil's meeting. These dissident directors argued that the oil company should focus more on the energy transition. The SEC's report suggested that certain approaches to raising environmental issues could lead to more expensive reporting requirements. The agency also released a Report of Investigation, though none of the three asset managers immediately commented on the report.

Michael Boudett, general counsel for the sustainability nonprofit Ceres, which coordinates Climate Action 100+ (CA100+), said that the group has always operated within US securities law to help investors assess the financial risks of climate change. However, the SEC's report noted that membership in an organization whose purpose is to change or influence control of a specific issuer could impact the ability of firms to use cheaper forms of disclosure.

The SEC's decision is a result of tightened reporting guidance for fund managers who pressure companies on ESG issues. This has led some firms, such as BlackRock and Vanguard, to soften their interactions to avoid higher disclosure costs. ExxonMobil's 2021 shareholder meeting became a flashpoint in the broader debate over investors' and corporate America's role in addressing environmental, social, and governance (ESG) factors, such as climate change.