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To what extent do companies contribute to climate change and how are they impacted by it? These questions are at the heart of a major announcement expected Monday from the Securities and Exchange Commission.
The country’s top financial regulator is expected to propose new disclosure rules that would require companies to report their contributions to greenhouse gas emissions as well as how climate change could affect their business.
It’s part of a global push by regulators to recognize climate change as a risk to their economies and financial systems.
Investors require companies to disclose potential climate change risks. But some companies worry that government climate-related mandates are intrusive and binding.
Here’s what to know ahead of the SEC’s announcement.
So what is the goal of the SEC?
Some companies, including Apple, already disclose their greenhouse gas emissions as well as those of their suppliers. But the United States lacks clear standards on exactly what companies should report to their investors about climate impact and risk. The SEC wants to change that.
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Any rules proposed by the four SEC commissioners, led by Chairman Gary Gensler, would be subject to a public comment period.
“There will be a whole new round of attention to climate disclosure rules and what that will mean for businesses, investments and, of course, the climate itself,” says firm partner Rachel Goldman. Bracewell lawyers.
Why adopt stronger climate disclosure rules?
Much of the push is coming from investors themselves, who are increasingly keen to know how climate change might impact the companies they fund.
The White House also wants to tackle climate-related financial risk. President Biden issued an executive order last year urging the federal government to help identify the risks posed by climate change.
Although the regulator has been considering the issue for years, efforts accelerated under former acting SEC Chairman Allison Herren Lee and continued under Gensler.
“When it comes to climate risk disclosure, investors are raising their hands and asking regulators for more,” Gensler said at a green investment forum last year.
“Investors today increasingly want to understand the climate risks of companies they own or might buy stock in,” he added.
Are companies in favor of better disclosure of climate information?
Most companies recognize the impact of climate change and many have already committed to moving towards net zero emissions.
But some companies worry that SEC warrants could be a headache and potentially expose them to lawsuits given the difficulty of measuring emissions and climate change risks.
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Anne Finucane, who oversaw Bank of America’s work on environmental, social and governance (ESG) issues as the bank’s vice president, supports stronger climate rules. She says climate risk reporting is demanding and can be duplicative.
“Right now there are at least a dozen third parties, NGOs, measuring businesses — all businesses, not just financial institutions,” she said in an interview with NPR before retiring. in December. “It’s like a Venn diagram. Eighty percent are the same, but 20% are different.”
Many Republican lawmakers oppose financial regulators getting into climate change.
This month, Sarah Bloom Raskin, President Biden’s nominee for a top regulatory job at the Federal Reserve, was forced to step down after drawing strong opposition to her stance that banking regulators should grant more pay attention to climate-related risks.
So, will the SEC rules spark a big fight?
It depends. It remains unclear how broad the SEC’s disclosure rules will be and whether they will impact all publicly traded companies.
But in particular, companies are concerned that the SEC could require companies to disclose so-called “Scope 3” emissions. These are the emissions generated by a company’s suppliers and customers. (Scope 1 corresponds to emissions generated by the company itself, while Scope 3 measures emissions related to the energy consumed, such as electricity for example)
Any decision by the SEC to require Scope 3 disclosures could trigger a big pushback from companies, as could any disclosure rule that companies deem too broad or too comprehensive.