SEC Rule Would Require Companies to Disclose Climate Impact

CNew rules Monday from the Securities and Exchange Commission would require companies to reveal the amount of greenhouse gases they emit and how it affects their business. This is part of an effort to combat climate change across government.

The proposals were approved by the SEC in a vote of 3-1. Public companies will have to disclose their climate risk, which includes the cost of switching to fossil fuels and the risks associated with higher temperatures, storms, and droughts. These companies will need to present their plans to manage climate risk and how they are going to reach their goals.

In recent years, investors have been looking for more information about the risk of global warming. Companies already offer climate-risk information freely. It is hoped that investors will be able, using the same information required, to make comparisons between companies in different industries and sector.

“Companies and investors alike would benefit from the clear rules of the road” in the proposal, SEC Chairman Gary Gensler said.

The required disclosures would include greenhouse gas emissions produced by companies directly or indirectly — such as from consumption of the company’s products, vehicles used to transport products, employee business travel and energy used to grow raw materials.

In 2010, the SEC released voluntary guidance, but mandatory disclosure rules have not been proposed. These rules were open to public comments for a period of 60 days. They could then be amended before final adoption.

Investor groups and climate activists have demanded mandatory disclosures of information for all businesses. The advocates estimate that excluding companies’ indirect emissions would leave out some 75% of greenhouse gas emissions.

“Investors can only assess risks if they know they exist,” Mike Litt, consumer campaigns director of the U.S. Public Interest Research Group, said in a prepared statement. “Americans’ retirement accounts and other savings could be endangered if we don’t acknowledge potential liabilities caused by climate change and take them seriously.”

“Climate risks and harms are growing across our communities with threats to our economy,” said Rep. Kathy Castor, D-Fla., chair of the House Select Committee on the Climate Crisis. “Investors, pension fund managers and the public need better information about the physical and transition-related risks that climate change poses to hard-earned investments,”

On the other hand, major business interests and Republican officials — reaching down to the state level — began mobilizing against the climate disclosures long before the SEC unveiled the proposed rules Monday, exposing the sharply divided political dynamic of the climate issue.

Hester Peirce was the only Republican of the four SEC Commissioners to vote against the proposal. “We cannot make such fundamental changes without harming” companies, investors and the SEC, she said. “The results won’t be reliable, let alone comparable.”

SEC’s action is part a larger government-wide effort to detect climate risks. There are new regulations being planned for various agencies that touch on agriculture, finance, and housing. Last May, President Joe Biden signed an executive order calling for specific steps to reduce climate risk and spur job creation.

Biden makes slowing climate change a priority. By 2030, he wants to have the U.S.’s greenhouse gas emissions reduced by 52% from 2005 levels. In addition, Biden stated that he would adopt a clean-energy standard to make electric power non-carbon-free by 2035 and the overall goal of net zero carbon emissions in the economy by 2030.

“This is a huge step forward to protect our economy and boost transparency for investors and the public,” White House national climate adviser Gina McCarthy tweeted as the SEC acted.

The premier business lobby, the U.S. Chamber of Commerce, and the American Petroleum Institute, the oil industry’s top trade group, expressed objections in letters to the SEC last year.

Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at API, said Monday the group is concerned that the SEC’s proposal could require disclosure of information that isn’t significant for investors’ decisions, “and create confusion for investors and capital markets.”

“As the (SEC) pursues a final rule, we encourage them to collaborate with our industry and build on private-sector efforts that are already underway to improve consistency and comparability of climate-related reporting,” Macchiarola said in a statement.

Opponents could bring the SEC to trial over regulations.

A group of sixteen Republican state attorneys general led by Patrick Morrisey from West Virginia raised concerns in a letter addressed to Gensler, the SEC Chairman, last June. “Companies are well positioned to decide whether and how to satisfy the market’s evolving demands, for both customers and investors,” they said. “If the (SEC) were to move forward in this area, however, it would be delving into an inherently political morass for which it is ill-suited.”

Morrisey threatened previously to sue SEC for expanded disclosures by companies of information about governance, environmental and social issues.

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