The SEC wants more climate disclosures. Businesses are preparing for battle.
WASHINGTON — The Securities and Exchange Commission is preparing to require state-owned companies to disclose more information about how they are responding to climate change threats — and companies are preparing to fight back.
New SEC Chairman Gary Gensler, appointed by the Biden administration, said climate-related disclosure was a top priority, and President Biden met on Monday with Gensler, Treasury Secretary Janet Yellen and other major financial regulators to discuss the matter. The SEC has already sought advice from industry, much of which arrived last week, for a proposed rule that could be released by October.
Tech companies like Apple Inc.
and Microsoft Corp.
, who have long touted their efforts to reduce their impact on the environment, say they support the initiative. Energy and transportation companies have told the SEC that climate disclosures could be misunderstood by investors who lack experience with data or place too much weight on a factor, such as total greenhouse gas emissions. greenhouse of a company.
The SEC has broad authority to require disclosures by companies that sell securities. But how it elicits specific information about climate change, the impact of which on individual business results is not always clear, risks becoming a political lightning rod and triggering an explosion of lobbying in Washington.
The challenge, according to regulators and company officials, is to identify the measures necessary to help investors assess a company’s financial prospects and define requirements flexible enough to generate specific, not generic, information about business risks.
“This is a generational project unlike anything the SEC has ever undertaken,” said Robert Jackson Jr., a former SEC commissioner. “It requires a lot of expertise at the personnel level and a huge reach in the market. “
About 90% of S&P 500 companies publish voluntary reports that disclose statistics on things like carbon emissions and the amount of renewable energy they use. Content is generally not reviewed by regulators. According to S&P Global Sustainable1, only 16% report similar metrics in regulatory filings, a company of asset ratings and market data provider S&P Global.
“Without a mandatory disclosure requirement, we expect to see a continuation of the current hodgepodge of disclosures in which issuers often choose which disclosures to adhere to, or in some cases, simply choose to avoid disclosure altogether,” Pacific Investment Management Co. general manager Scott Mather wrote to the SEC.
Biden administration officials say better corporate reporting on climate change will channel more capital into greener industries, helping governments meet the goal of net zero emissions by 2050 as part of the ‘Paris Agreement. Globally, about $ 1.6 trillion a year is needed to achieve this goal, according to the Energy Transitions Commission, a group of global industrial companies, financial institutions and nonprofits.
Companies are unlikely to provide all the relevant data without a government mandate, said White House National Economic Council director Brian Deese, who previously headed BlackRock. Inc.
sustainable investment firm.
“Just because a risk is significant and present does not mean the market on its own will disclose it through voluntary disclosure,” Deese said last month.
Some Republicans in Congress oppose the SEC’s initiative.
“The push for more disclosure related to global warming has little to do with providing material information for investment purposes,” 12 GOP senators, including Pat Toomey of Pennsylvania, wrote to the SEC on June 14. the company or its shareholders are trying to impose their progressive political views on publicly traded companies and the country as a whole, failing to push through changes through the elected government.
Defining which risks are important and how companies should talk about them has long been a source of conflict between companies, investors and regulators. The Supreme Court, in a 1976 ruling, said information is important if a reasonable investor considers it important to an investment or proxy voting decision. The principle gives companies leeway to judge when facts or projections fit the concept, although the SEC can question those decisions.
Some energy companies told the SEC they were concerned about giving environmental data the same status as accounting metrics, which must comply with decades-old rules overseen by the SEC and a government-sanctioned standards body. . Even estimates of greenhouse gas emissions can suffer from a lack of standardization, said general counsel for pipeline operator Williams Cos. to the SEC in a letter.
Apple has called on state-owned companies to disclose “scope three” emissions, a category that is more difficult to measure and includes the carbon footprint generated by activities such as employee travel, waste disposal and the use of their own. produced by consumers.
For businesses, climate change can involve both physical risks, such as extreme weather events that can cause unexpected losses, as well as transition risk, which includes government policies that force people to move away from fuels. fossils. California, for example, has indicated that it will ban the sale of new gasoline-powered vehicles over the next decade.
Current SEC guidelines suggest that both types of risk may need to be disclosed in federal documents. But the guidelines don’t spell out specific and required disclosures, and companies decide what to say about the risks.
“My view is that there is relatively little climate disclosure in the periodic reports,” said Democratic SEC Commissioner Allison Herren Lee. “We need to have something mandatory in place but provide enough flexibility to give companies the opportunity to learn how to do things right.”
Commissioner Hester Peirce, one of the two five-member SEC Republicans, said she was not convinced regulators should impose specific climate disclosures. If some investors want more information, they are free to seek it from companies, she said.
“Sometimes if you are an asset manager offering a specialized fund, that means you have to do a little more work, and that may be why you charge higher fees to manage the fund”, a- she declared.
BlackRock, which manages more than $ 8 trillion in assets and has a growing activity of funds that qualify as environmentally or socially sustainable, supports the efforts of the SEC and has come under pressure from its clients to quit ‘They are taking a stronger stance on climate change.
“What we are getting is a wave of recognition that this information is important for understanding risk, not just at the individual company level, but at the market level and possibly at the global system level,” said Michelle Edkins. , Chief Investment Officer of BlackRock. stewardship team.
Write to Dave Michaels at [email protected]
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