US companies should disclose climate risks under proposed SEC rules

U.S. companies would be required to disclose the greenhouse gas emissions they produce and how climate risk affects their business under new rules proposed Monday by the Securities and Exchange Commission as part of a government campaign in the United States to fight climate change.

According to proposals passed in a 3-1 SEC vote, public companies should report on their climate risks, including the costs of switching from fossil fuels, as well as risks related to the physical impact of storms, drought and higher temperatures caused by global warming. They would be required to outline their transition plans for managing climate risk, how they intend to meet climate targets and progress made, and the impact of severe weather events on their finances.

The number of investors seeking more information on the risks associated with global warming has increased considerably in recent years. Many companies already provide information on climate risks voluntarily. The idea is that with uniform required information, investors would be able to compare companies within industries and sectors.

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

What types of emissions must be disclosed?

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

Smoke fills the air at the ExxonMobil refinery December 23, 2021 in Baytown, Texas. The proposed new rules require the disclosure of greenhouse gas emissions produced by companies directly or indirectly, such as the consumption of the company’s products. (Mark Mulligan/Houston Chronicle/Associated Press)

The SEC issued voluntary guidelines in 2010, but this is the first time mandatory disclosure rules have been proposed. The rules were opened for a public comment period of approximately 60 days and they could be modified before any final adoption.

Climate activists and investor groups have called for mandatory disclosure of information that would be uniformly required of all companies. Advocates estimate that excluding indirect corporate emissions would exclude about 75% of greenhouse gas emissions.

Why Business Groups, Republican Officials Oppose It

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

Hester Peirce, the only Republican among the four SEC commissioners, voted against the proposal. “We can’t make such fundamental changes without hurting” businesses, investors and the SEC, she said. “The results will not be reliable, let alone comparable.”

The SEC action is part of a whole-of-government effort to identify climate risks, with new regulations planned by various agencies relating to the financial sector, housing and agriculture, among other areas. US President Joe Biden issued an executive order last May calling for concrete action to mitigate climate risks, while spurring job creation and helping the country reduce greenhouse gas emissions that contribute to the climate change.

Biden has made slowing climate change a top priority and has set a goal to cut U.S. greenhouse gas emissions up to 52% below 2005 levels by 2030. He has also said he plans to adopt a clean energy standard that would make carbon-free power electric by 2035, as well as the broader goal of net-zero carbon emissions in the economy by 2050.

A report released last fall by the Financial Stability Oversight Board, a group of top federal regulators including the Federal Reserve and the Treasury Department, warned that climate change posed risks to financial institutions and the financial system.

The nation’s top business lobby, the U.S. Chamber of Commerce, and the American Petroleum Institute, the oil industry’s leading trade group, argue that the SEC is overstepping its authority with mandatory reporting rules. , which would impose substantial costs on businesses.

The SEC could be sued

The threat that opponents could sue the SEC over the regulations looms.

Last June, a group of 16 Republican state attorneys general, led by Patrick Morrisey of West Virginia, raised objections in a letter to SEC Chairman Gensler. “Companies are well placed to decide whether and how to meet changing market demands, both for customers and investors,” they said. “If the (SEC) were to move forward in this area, however, it would plunge into an inherently political quagmire for which it is ill-suited.”

Morrisey previously threatened to sue the SEC over the companies’ extensive disclosures of environmental, social and governance information.