The U.S. Securities and Exchange Commission (SEC) has come under pressure to propose a climate disclosure rule with the same purposes as the ones analyzed in this report. In the SEC case it is about publicly traded companies that would be required to enhance transparency and reporting for risk assessment, specifically for investors. While also under pressure by various lobby groups who oppose such effort, the SEC wants investors to be equipped with climate-related data when making investment decisions, and the SEC is using the Task Force on Climate-related Financial Disclosures (TCFD) and the Greenhouse Gas Protocol to build on the momentum to create the various components of a climate disclosure regulation.
As of now, the SEC has been slow to move forward with its plan, largely as a result of a strong pushback from lobby groups and political circles. Proponents are in favor of watering down the SEC proposed rule published on March 21, 2022. They argue there will be too much information to disclose on climate-related risks, greenhouse gas emissions, and governance practices related to climate change. It is unclear what will happen next, but clear positions are expected after the November presidential election.
For now, the law is going through a public comment period, with the SEC soliciting public feedback. However, dozens of companies have selected not to wait for the rule to be effective, even if it has the chance of being scaled back or abandoned post elections. Many companies are investing in preparing their internal financial, accounting and ESG reporting systems in anticipation of the rule being passed one way or another.
In its current version, and similar to California’s laws, the SEC’s Climate Disclosure Rule envisages public companies to disclose climate-related risks, if such risks could have an negative impact on business, adversely affecting investors’ money. Regardless, the rule lists the same areas of interest as other existing or current international and state regulations, including Scope 1 and Scope 2 related to greenhouse gas emissions, and eventually Scope 3.
The rule forces companies to actually share their plans and issue progress reports on their environmental targets and provide details related to timelines for meeting reported goals. The pushback from opponents relates to the requirement of disclosing indepth information on how climate could affect their financials. Such disclosures are not standard reporting for companies as they prefer to keep them confidential. However, the rule wants to formalize such reporting to be included int the companies’ registration statements and annual reports (Form 10-K).
While there are benefits for investors and the public to have access to such information, we expect resistance against the rule to remain strong. Ultimately, though, we also anticipate the rule to pass in the medium term, perhaps in a more reduced format.
