The SEC wants to know a lot more about what companies are doing about climate change
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Before a Senate Banking, Housing, and Urban Affairs Committee oversight meeting on the SEC, Gary Gensler, Chair of U.S. Securities and Exchange Commission, testifies on behalf of his country before this committee, which took place in Washington, September 14th, 2021.
Evelyn Hockstein | Pool | Reuters
The Securities and Exchange Commission is interested in learning more about companies’ actions regarding climate change.
Monday will see the meeting of SEC commissioners. They are expected to present rules for enhancing disclosures on climate-related risks.
This is part of the ambitious regulatory agenda that Gary Gensler, SEC Chair, has set. The SEC is currently considering more than 50 rules, making it one of the most ambitious regulatory agendas for decades.
Climate disclosure rules, however, are highly controversial.
Gensler stated in July 2021 that investors are increasingly interested in understanding the climate risk of companies they might purchase or own stock. He stated that investors are seeking consistent disclosures to make informed decisions and be able to invest in the right companies for their needs.
On Monday, the SEC will release details about its rules. These rules, however, are most likely to be based upon Gensler’s speeches in the past.
Mandatory disclosures are required. The U.S. does not have clear standards on what, if anything, corporations need to disclose to investors about climate risk. Gensler has previously said climate disclosures should be “consistent and comparable.”
File the annual company report (Form 10-K).This would allow it to be visible alongside other information investors may use in order to make investment decision.
Both qualitative and quantitative disclosures are required.Gensler previously stated that quantitative disclosures could include data related to climate-related goals, such as financial impact of climate change and greenhouse gas emissions. The SEC is likely to request disclosures about climate risks, such as those posed by flooding, hurricanes or droughts. These qualitative disclosures could include information about how the company’s leaders manage climate-related risk and opportunities, and how they are incorporated into its strategy.
Demand that companies back up claims. In the past, Gensler has noted that companies, for example, could claim to be “net zero” in their greenhouse gas emissions but not provide any information that substantiates the claim.
Gensler is also critical of investment funds who market themselves as green, sustainable or low-carbon. However, Gensler remains unsure about their criteria. Gensler stated that he would like fund managers to reveal the data and criteria they used in creating these funds.
Push-back is possible
Although many businesses acknowledge that climate change is a problem, some companies have indicated they are willing to shift to net-zero emission. This move could be met by resistance from members of the business community who worry about the SEC’s new disclosure requirements on climate change.
In a statement to CNBC, Kenneth E. Bentsen, Jr., president and CEO of the Securities Industry and Financial Markets Association (SIFMA), an industry group representing securities firms, banks, and asset management companies, said: “SIFMA believes any ESG disclosure rule should deliver a balance of tailored disclosures and comparable quantitative information across registrants, while minimizing registrant compliance costs and ensuring a flexible disclosure regime that can meet evolving circumstances.”
Many lawmakers are concerned about overreach in regulatory regulation.
CNBC has received an official statement by the U.S. CNBC received a statement from U.S. Congressman Andy Barr (Republican, Kentucky), who was a key member of House Financial Services Committee and led GOP opposition to the SEC’s climate disclosure rulemaking process in October last year. He stated: “The Statutory Mission of the Securities and Exchange Commission is to protect investors and maintain fair, efficient, and orderly markets and facilitate capital formation. The goal of the SEC is not to decrease carbon emissions nor solve climate change.
“But, the SEC by entering into environmental policy disputes, like climate change in which it has no expertise…will politicize agency and reduce its credibility by hurting investors, elevating financial returns above non-pecuniary variables,” he stated.
It is just the beginning of the process.
The SEC’s proposed rules, should they be approved by the Commission, is only the start of the process.
Once a new rule has been proposed, a public comment period will follow, which recently has been either 30 days from when it is published in the Federal Register, or 60 days after it is issued, whichever is longer.
The SEC is then able to respond to any comments or request additional comments. The final rule may then be put to a vote and adopted.
Amy Lynch, President of FrontLine Compliance, and an ex-SEC Compliance official told me that getting to the final vote can be difficult.
“There has to be agreement in the division responsible for that rule with the SEC commissioners, which can be a very political process,” she told me. The key issue is whether or not the proposal is in the mind of the majority.
SEC Chair Gary Gensler is scheduled to be at Squawk Box, Monday, 2:15 PM for a discussion on the proposed rules on climate disclosure.
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