This was part of an effort to combat climate change across government.
The proposals were approved by the SEC in a 3-1 vote. Public companies would be required to report on climate risks. This includes the cost of switching to fossil fuels and the risks associated with higher temperatures, storms, and droughts. They would have to outline their climate risk management plans, including how they plan to achieve climate goals, progress made and the financial impact of severe weather events.
In recent years, investors have been looking for more information about the risk of global warming. Many companies provide information on climate risk voluntarily. Investors would be able compare companies across industries and sectors if they have the same required information.
Gary Gensler, Chairman of SEC, stated that both investors and companies would benefit from the “clear rules of the road” proposed by the Commission.
Disclosures are required to include information about greenhouse gas emissions that companies produce directly or indirectly, such as through the consumption of company products, vehicles used for transporting products, employee business travel, and energy used in growing raw materials.
In 2010, the SEC released voluntary guidance, but mandatory disclosure rules have not been proposed. These rules were open to public comment for a period of approximately 60 days. They could be amended before final adoption.
Investor groups and climate activists have demanded mandatory disclosure of information for all companies. According to advocates, excluding indirect greenhouse gas emissions from companies would result in a drop of 75%.
Mike Litt, U.S. Public Interest Research Group’s consumer campaigns director, stated in a prepared statement that investors can only evaluate risks if they are aware of them. If we fail to recognize potential liabilities caused climate change, our retirement savings and other savings may be at risk.
“Climate hazards and harms are increasing across our communities with threats for our economy,” stated Rep. Kathy Castor (D-Fla.), chair of the House Select Committee on the Climate Crisis. “Investors, pension funds managers, and the general public need to be better informed about the transition-related and physical risks that climate change poses for hard-earned investments.
However, Republican officials and major business interests began to mobilize against the climate disclosures well before the SEC revealed the rules Monday. This exposed the starkly divided political dynamics of the climate issue.
Hester Peirce was the only Republican of the four SEC commissioners to vote against the proposal. She stated that “we cannot make such fundamental adjustments without harming” investors, companies and the SEC. “The results won’t be reliable, let’s not even comparable.”
The SEC’s action is part of a larger government effort to identify climate risk. New regulations are planned by various agencies, including those affecting the financial sector, housing, and agriculture. Last May, President Joe Biden issued an executive directive requesting concrete steps to reduce climate risks and spur job creation.
Biden has made slowing the pace of climate change a priority. He has set a goal to reduce U.S. greenhouse gases emissions by up to 52% below 2005 levels by 2030. Biden also stated that he plans to adopt a clean energy standard for electric power, which would eliminate carbon emissions by 2035. This is in addition to the larger goal of zero carbon emissions throughout the economy by 2050.
“This is an important step forward to protect the economy and increase transparency for investors,” Gina McCarthy, White House national climate advisor, tweeted after the SEC took action.
U.S. Chamber of Commerce is the largest business lobby. The American Petroleum Institute is the top trade group in the oil industry.
Frank Macchiarola is senior vice president of policy and economics at API. He stated Monday that API is concerned about the SEC’s proposal to require disclosure of information that’s not significant for investors’ decision making. “And create confusion for investors”
Macchiarola stated in a statement that the (SEC), is pursuing a final rule. He encouraged them to work with our industry and to build on private sector efforts already underway to improve consistency, comparability, and climate-related reporting.
There was always the possibility that opposition could sue the SEC for violating the regulations.
A group of 16 Republican state attorneys-general, including Patrick Morrisey from West Virginia, made objections to the SEC Chairman Gensler’s June letter. They stated that companies are in a good position to determine whether or not to meet the evolving market demands for investors and customers. “If (the SEC) moves forward in this area, however it would be delving in an inherently political morass which it is not suited for.”
Morrisey threatened to sue SEC for expanded disclosures by companies of information about governance, environmental, and social issues.
