Government wants companies to disclose their climate change risks

Financial regulators have unveiled sweeping new rules that would require companies to disclose the greenhouse gas emissions they produce and how climate risk affects their businesses – part of a campaign by the Biden administration to combat climate change.

Under the rules, proposed Monday by the United States Securities and Exchange Commission, publicly traded 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 present to shareholders their transition plans for managing climate risk, how they intend to achieve climate goals and progress made, and the impact of severe weather events on their finances.

Companies that have made climate-related commitments will be required to provide details on how they achieve these goals.

The number of investors seeking more information about the risks associated with global warming has increased dramatically in recent years, cost of extreme weather disasters skyrocketed to hundreds of billions of dollars a year. Many companies already provide climate risk information voluntarily, but climate activists and investors have criticized some disclosures as inconsistent and lacking in detail, sometimes amounting to “greenwashing”.

The idea behind the SEC’s proposal is that, with uniform required disclosures, investors would be able to compare companies within industries and sectors.

“Today, investors representing literally tens of trillions of dollars are supporting climate-related disclosures because they recognize that climate-related risks can pose significant financial risks to businesses, and investors need reliable risk information. to make informed investment decisions,” SEC Chairman Gary Gensler said. in one declaration.

Direct and indirect emissions

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.

The SEC issued voluntary guidelines in 2010, but this is the first time mandatory disclosure rules have been proposed.
Climate activists and investor groups have claimed for mandatory disclosure of information that would be uniformly required of all companies. Proponents estimate that excluding indirect corporate emissions, also known as scope 3 emissions, would miss out on around 75% of greenhouse gas emissions.

The rules were opened for a public comment period of approximately 60 days. They are likely to be modified before any final adoption, according to observers.

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Climate activists have welcomed the proposed rule for public companies.

“Investors deserve all the information they need to properly assess financial risk,” said Mike Litt, director of consumer campaigns at US PIRG. “Americans’ retirement accounts and other savings could be at risk if we don’t recognize the potential liabilities caused by climate change and take them seriously. The Great Recession has shown us what can happen when government regulators and Wall Street are ignoring the risks and not disclosing them to the public.”

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, which passed 3-1. “We can’t make such fundamental changes without hurting” businesses, investors and society. SEC, she said. “The results will not be reliable, let alone comparable.”

Tory pushback is likely to weaken the rules before final passage, according to Cowen analyst Jaret Seiberg.

“This is not the final word on climate disclosures,” he said in a research note. “Expect progressives to demand more and conservatives to complain that the SEC is overstepping its jurisdiction and contributing to high energy costs.”

Whole-of-government effort to slow climate change

The SEC action is part of a government-wide effort to identify climate risks, with new regulations planned by various agencies regarding the financial sector, housing and agriculture, among other areas. President Joe Biden issued an executive order last year calling for concrete action to mitigate climate risks, while spurring job creation and helping the United States reduce greenhouse gas emissions that contribute to 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 electric power carbon-free by 2035, as well as the broader goal of net-zero carbon emissions in the economy by 2050.

A report published last fall by the Financial Stability Oversight advice, a group of top federal regulators including the Federal Reserve and the Treasury Department, warned that climate change poses risks to financial institutions and the financial system. Last year, a government watchdog also found that pension plans and 401(k)s were vulnerable to climate riskswhile the costs of disasters could increase losses for businesses and the economy in general.

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The leading 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, and that they would impose substantial costs on businesses.

Tom Quaadman, the Chamber’s executive vice president for competitive capital markets, said the rules required too much information from companies that was not “material” to their financial performance. “Any disclosure required under securities laws must meet the materiality test, and we will oppose any provisions of this proposal that deviate from that standard or are unnecessarily broad,” Quaadman said in a mailed statement. electronic.

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.

With reporting by CBS News’ Irina Ivanova.