Attorneys general of 24 Republican-controlled states stretching from Alaska to West Virginia wrote to the SEC last month, calling the agency’s climate disclosure plan “an unwise setback in environmental regulation.”
What is the SEC’s plan on climate risk disclosures? The SEC announced plans in march to require companies to disclose their climate risks within their operations when preparing their annual reports and other required documents. Accountants or other experts then analyze the data in those reports. At the heart of the dispute is transparency about emissions produced by companies in their supply chain, or their so-called Scope 3 emissions.
Who’s For This SEC’s Climate Risk Disclosure Plan? The move has been initiated by several major financial firms to use their economic power to mitigate climate risks and stranded assets. The proposal has the support of many environmental advocates, Democrats and some of the largest public pension funds.
What is the background to the SEC’s proposed rule? The US is the largest historical emitter of greenhouse gases (GHGs), and the world has warmed by about 1.1 degrees Celsius since 1850, making the planet hotter than it has been in at least 125,000 years. Business practices have contributed to the majority of these greenhouse gases in the past. Companies produce just about everything we buy, use and throw away and play an outrageous role in driving global climate change. A 2019 report identified that just 100 companies are responsible for 71% of all industrial emissions since human-induced climate change was officially recognized.
What Will the SEC’s Rule on Climate Disclosures Achieve? If established, the SEC rule will help investors quantify and standardize financial risks from climate change and the carbon transition, according to Bloomberg Green† Issuers should report how they identify and manage climate risks, in addition to certain monitored GHG emissions data.
Who is against this SEC plan? Several corporate lobby groups and Republicans are fighting back against the plan.
What are these opposition groups saying is wrong with the SEC plan? The attorneys general who oppose the SEC plan cite 3 primary concerns.
- The SEC has no legal authority to issue it.
- It violates the First Amendment.
- The rule does not reflect reasoned decision-making and would therefore fail under arbitrary and erratic review by the courts.
Let’s get more specific. What exactly did the attorneys general say in their letter? They believe that the SEC’s role is to protect investors and financial markets. This rule, the Republican attorneys wrote in their June 15 letter, does neither, and instead advocates “naked policy biases far away…. It is up to lawmakers to decide important policy issues like these, not to unelected officials.”
What threats have the attorneys general expressed in support of their opposition to the SEC’s rule on climate disclosures? If the SEC’s bill goes into effect, these 29 attorneys general promise to move their investments away from banks and asset managers that are moving away from fossil fuels — and weapons. They also state that they will continue to fight against any regulation designed to improve environmental, social and governance transparency (ESG) to invest.
Is the trend of investors to water down the SEC rule? No. The Proxy example team recently released highlights from the 2022 proxy season, which has so far racked up a record 282 votes and 34 majority votes favoring disclosure and action regarding ESG shareholder resolutions. “It was a record year for resolutions, with almost 60% more votes,” said Heidi Welsh, executive director of the Sustainable Investments Institute and co-author of Proxy Preview. Bloomberg Green adds that one of the largest investors, the California State Teachers’ Retirement System, says the SEC needs to go even further in its rule and Scope 3 emission declarations mandatory for all listed companies.
What are Scope 3 emissions? Until recently, most companies focused on measuring emissions from their own operations and electricity consumption. But what about all the emissions a company is responsible for beyond its own walls – from the goods it buys to the disposal of the products it sells? The Greenhouse gas protocol outlines how the majority of total company emissions come from Scope 3 sources, meaning that many companies have missed significant opportunities for improvement. Scope 3 emissions are the result of activities of assets that are not owned or controlled by the reporting organization, but that indirectly affect the organization in its value chain. Scope 3 emissions include all sources that do not fall within the scope 1 and 2 boundary of an organization.
What is the response of large investment firms to climate disclosure requirements? With hurricanes, flooding and rising temperatures in places like Texas, major investment companies like black rock or JPMorgan Chase have increasingly admitted that they have no solution but to assess and address climate risks if they begin to manage their financial risks, according to an analysis in the Washington Post†
What changes could happen after the SEC rule goes into effect? A sharper focus on ESG in private markets, emerging regulations such as the European Union’s Sustainable Finance Disclosure Regulation (SFDR), and US announcements to achieve a 50-52% reduction by 2030 from 2005 levels in the economy -wide net greenhouse gas pollution, are already combining to drive growth of climate technology† Thousands of companies have made public commitments to achieve net zero, set science-based goals, or have attempted to demonstrate their wider commitment to society through B Corp status.
lIs the current language of the SEC’s climate disclosure rule a foregone conclusion? As the SEC has received dozens of letters from individuals and groups outlining their own recommendations on climate disclosure requirements, language changes and strictness may occur. The SEC will hold a second vote to finalize the regulation.
Is there any indication that the SEC will waive its plan to require corporate climate information? No. There is every indication that the SEC will continue to implement the rules.
If the rule goes into effect, is it likely there will be legal challenges? The Supreme Court’s right-wing activism – what appears to be… prefer fossil capitalism over a zero-emissions, renewable energy future — makes it likely that opponents can appeal the SEC rule.
When will we know the SEC’s final decision? In November — right around the time of midterm elections — investors should be getting a lot of media attention about the final SEC plan for more comprehensive corporate climate disclosures.
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