Title: SEC Oversight on Climate-Related Disclosures

Authors: Huiyun Cong (Capital University of Economics and Business), Xiao Li (Central University of Finance and Economics), Lixin (Nancy) Su (The Hong Kong Polytechnic University), Mengdi (Mendy) Zhang (The Hong Kong Polytechnic University)

Abstract: We investigate the consequences of SEC comment letters about climate change disclosure between 2021 and 2022. Using the bigrams developed by Sautner et al. (2023a), we find that firms enhance their disclosure of climate change risks in subsequent 10-K filings. The effect is more pronounced for firms with higher levels of climate change exposure or experience a greater negative market reaction upon the SEC’s publication of the comment letter after its resolution. We also document reductions in divergence between 10-K filings and CSR reports as well as environmental rating disagreement among various ESG rating agencies. To comply with the disclosure requirements specified in the comment letters, firms demonstrate a proactive response by making more human capital investments in green talents. Our study provides empirical evidence on the materiality disagreements of climate-change-related disclosures between the SEC and the firms and suggests that the SEC’s oversight through comment letters mitigates such divergence.