New corporate climate change disclosures proposed by SEC

FILE – A line of drivers and tanker trucks capable to haul water and hydraulic fracturing fluid is seen near a natural gas burner off flame and storage tanks at Williston, N.D. on June 9, 2014. The Securities and Exchange Commission proposed new rules that companies would have to disclose their greenhouse gas emissions and how they are affected by climate change. These rules were part of a push across government to address climate changes. (AP Photo/Charles Rex Arbogast).

Marcy Gordon, AP Business Writing Expert

WASHINGTON (AP) — 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 drive across the government to address climate change.

The proposals were approved by 3-1 vote of the SEC. Public companies would be required to report on climate risks. This includes the costs of switching to fossil fuels and the risks associated with storms, droughts, and higher temperatures due to global warming.

They would be required by the government to present their climate risk management plans, their progress and goals, and the impact of severe weather on their finances.

Recent years have seen a dramatic increase in the number of investors looking for information on global warming risk. Many companies provide climate-risk information freely. Investors would be able, with the same required information, to compare companies within different industries and sectors.

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

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

In 2010, the SEC issued voluntary guidance, but this is the first time that mandatory disclosure rules have been proposed. The rules were open to public comment for around 60 days. They could be modified before final adoption.

Climate activists and investor groups are calling for mandatory disclosures of information that would be required of all companies. The advocates estimate that excluding companies’ indirect emissions would leave out some 75% of greenhouse gas emissions.

“Investors can only assess risks if they know they exist,” Mike Litt, consumer campaigns director of the U.S. Public Interest Research Group, said in a prepared statement. “Americans’ retirement accounts and other savings could be endangered if we don’t acknowledge potential liabilities caused by climate change and take them seriously.”

“Climate risks and harms are growing across our communities with threats to our economy,” said Rep. Kathy Castor, D-Fla., chair of the House Select Committee on the Climate Crisis. “Investors, pension fund managers and the public need better information about the physical and transition-related risks that climate change poses to hard-earned investments,”

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

Hester Peirce was the only Republican among the four SEC commissioners to vote against the proposal. “We cannot make such fundamental changes without harming” companies, investors and the SEC, she said. “The results won’t be reliable, let alone comparable.”

The SEC’s actions are part of a federal effort to identify climate risks. There are new regulations being planned from different agencies that touch on the financial industry, housing, and agriculture. President Joe Biden issued a May executive order requesting concrete steps to mitigate climate risks, spurring job creation, and helping the U.S. to reduce greenhouse gas emissions that contribute towards climate change.

Biden has made slowing the pace of climate change a top priority. He has set a goal to reduce U.S. greenhouse gases emissions by up to 52% below 2005 levels by 2030. He stated that he would adopt a clean-energy standard to make electric power carbon-free in 2035, and the wider goal of zero carbon emissions throughout the economy by 2050.

“This is a huge step forward to protect our economy and boost transparency for investors and the public,” White House national climate adviser Gina McCarthy tweeted as the SEC acted.

The premier business lobby, the U.S. Chamber of Commerce, and the American Petroleum Institute, the oil industry’s top trade group, expressed objections in letters to the SEC last year.

Frank Macchiarola, senior vice president of policy, economics and regulatory affairs at API, said Monday the group is concerned that the SEC’s proposal could require disclosure of information that isn’t significant for investors’ decisions, “and create confusion for investors and capital markets.”

“As the (SEC) pursues a final rule, we encourage them to collaborate with our industry and build on private-sector efforts that are already underway to improve consistency and comparability of climate-related reporting,” Macchiarola said in a statement.

There was always the possibility that opponents might sue the SEC for violating the regulations.

A group of 16 Republican state attorneys-general, led by Patrick Morrisey from West Virginia, raised objections to the SEC Chairman Gensler’s June letter. “Companies are well positioned to decide whether and how to satisfy the market’s evolving demands, for both customers and investors,” they said. “If the (SEC) were to move forward in this area, however, it would be delving into an inherently political morass for which it is ill-suited.”

Morrisey threatened to sue SEC for expanded disclosures by companies of environmental, governance and social information.