SEC proposes mandates on company reporting of climate risks, greenhouse gases

The US Securities and Exchange Commission (SEC) proposed Mar. 21 a rule to mandate corporate reporting of climate risks and greenhouse gas emissions (GHGs).

The proposed rule would require disclosures of “information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition,” the SEC said in announcing the proposal.

Companies already are required to divulge information about risks—climate or otherwise—that can have a material impact on a business. The SEC suggested its plan would require commonly used metrics that would make it easier for investors to assess the relative risk profiles of different companies.

The risks cited by the SEC proposal include not only what the public might imagine—changes in weather, for example—but “regulatory, technological, and market risks driven by a transition to a lower-GHG intensive economy.”

The proposed rule would require a company to disclose information about the company’s “governance” or high-level oversight and management policies for climate-related risks. Such disclosures would be part of the “environmental, social, and governance” reporting that many people have begun demanding from businesses.

As for the commonly used metrics referenced by the SEC, the agency cited “the GHG Protocol,” a protocol that emerged many years ago from a collaboration between the World Resources Institute and the World Business Council for Sustainable Development, some businesses and nongovernmental organizations.

Caution urged

The US Chamber of Commerce issued a statement questioning whether the SEC approach would stick to material disclosures and clear information.

“The chamber is concerned that the prescriptive approach taken by the SEC will limit companies’ ability to provide information that shareholders and stakeholders find meaningful while at the same time requiring that companies provide information in securities filings that are not material to investors,” said Tom Quaadman, executive vice-president for the chamber’s Center for Capital Markets Competitiveness.

“The Supreme Court has been clear that any required disclosures under securities laws must meet the test of materiality, and we will advocate against provisions of this proposal that deviate from that standard or are unnecessarily broad,” Quaadman said.

The American Petroleum Institute issued a similar cautionary statement.

“We are concerned that the commission’s sweeping proposal could require non-material disclosures and create confusion for investors and capital markets,” said Frank Macchiarola, the trade group’s senior vice-president of policy, economics, and regulatory affairs.

Environmental politics

The SEC move comes amid a broader tension between the Biden administration and critics who say the administration may politicize federal agencies including the SEC and the Federal Reserve (OGJ Online, Feb. 22, 2022).

That concern led Sarah Jane Raskin, nominated by President Biden to a seat on the governing board of the Federal Reserve, to withdraw her candidacy a week ago when it became apparent she was unlikely to win Senate confirmation.

Biden issued a statement Mar. 15 denouncing “industry and conservative interest groups” and Senate Republicans “focused on amplifying these false claims and protecting special interests.”

Raskin’s own words may have been her main problem, however, given her past advocacy that financial regulators adopt policies that, in her words, “will allocate capital and align portfolios toward sustainable investments that do not depend on carbon and fossil fuels.”

Sen. Joe Manchin (D-W.Va.) announced Mar. 14 that he could not vote to confirm her, the step that precipitated her withdrawal.