Thomas L. Riesenberg is a Senior Regulatory Advisor at Ceres. This post is based on his Ceres piece.
Scores of U.S. and non-U.S. financial regulators have in recent years been addressing climate change through rulemakings, risk assessments, and other activities. But one actor has been absent – the Public Company Accounting Oversight Board.
The PCAOB (technically a nonprofit corporation, not a U.S. government agency) was created by the Sarbanes-Oxley Act to oversee the performance of public company audits and the auditing profession. Its five board members are appointed by the Securities and Exchange Commission. Last year, the SEC replaced all five Trump-era members, with SEC Chair Gary Gensler stating his hope that this would set the PCAOB “on a path to better protect investors by ensuring that public company audits are informative, accurate, and independent.”[1]
The PCAOB laid out that path in its PCAOB’s Draft Strategic Plan, issued in August of this year. [2] The draft plan sets forth the organization’s goals for 2022 through 2026, including the need to address many “emerging trends,” such as “new approaches to raising capital (including through special purpose acquisition companies), digital assets, the war for talent, and increased remote work at public companies, broker-dealers, and audit firms.” These trends, the Draft Plan stated, are “transforming auditing and financial statement preparation,” requiring the PCAOB to “anticipate and respond to developments in the audit profession” and moderniz[e] our standards to drive changes in auditing practices and enhance investor protection.”
No mention is made in the draft plan of any actions the PCAOB might take with respect to climate change. This is puzzling for several reasons, as Ceres, a sustainability nonprofit, explained in a comment letter submitted to the PCAOB. [3] Most significantly, a few months before the PCAOB issued its draft plan, the SEC published in March 2022 its proposed climate disclosure rule, and that rule would directly implicate the PCAOB’s work by requiring that independent third-parties, such as accounting firms registered with the PCAOB, provide assurance of certain SEC registrants’ reports of their greenhouse gas emissions. Given that potential requirement, the SEC’s proposing release includes references to the PCAOB more than a dozen times. For example, the SEC asked for comment on the question “[w]hat, if any, additional guidance or revisions” of the PCAOB standards might be needed if the proposed rule were adopted? Further, because the rule proposal would allow firms that are not PCAOBregistered accounting firms to perform this work, the SEC asked whether it should “direct the PCAOB to develop a separate registration process for service providers that are not otherwise registered?”[4]