The Securities and Exchange Commission on Monday proposed rule amendments to require public companies to disclose climate-related risks and greenhouse gas emissions.
The commission approved the rule amendments in a 3-1 vote, with its lone Republican, Hester M. Peirce, dissenting.
Under the proposal, public companies would be required to disclose a host of climate-related information in their registration statements and periodic reports, including:
- The oversight and governance of climate-related risks by the registrant's board and management.
- How any climate-related risks identified by the company have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short, medium or long term.
- How any identified climate-related risks have affected or are likely to affect the company's strategy, business model and outlook.
- If the registrant has adopted a transition plan as part of its climate-related risk management strategy, a description of the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks.
The proposal would also require companies to disclose the greenhouse gas emissions they generate, and the "indirect" emissions generated from a company's supply chain, if material, though smaller companies would be exempt from the latter requirement. "These proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a registrant's exposure to, and management of, climate-related risks, and in particular transition risks," the SEC said in a news release.
If approved, the rule amendments would be phased in over multiple years; the largest companies would need start disclosing by the end of fiscal year 2023.
"Companies and investors alike would benefit from the clear rules of the road proposed in this release," SEC Chairman Gary Gensler said in a statement. "I believe the SEC has a role to play when there's this level of demand for consistent and comparable information that may affect financial performance. Today's proposal thus is driven by the needs of investors and issuers."
The SEC began working on the proposal soon after the Biden administration took office last year. In March 2021, under Acting Chairwoman Allison Herren Lee, who is now once again solely a commissioner, the SEC put out a request for comment on climate disclosures and received more than 550 unique responses.
The time has come for mandatory climate disclosure in the U.S., said Mary Schapiro, head of the secretariat for the Task Force on Climate-related Financial Disclosures and SEC Chairwoman during the Obama administration. "Climate risk is financial risk, and today's announcement from the SEC meets the longstanding demand from investors for transparency into how climate change is impacting the global economy," she said.
Gregory Hershman, Washington-based head of U.S. policy at Principles for Responsible Investment, a United Nations-supported network of investors that works to promote sustainable investment, echoed a similar sentiment. "The current universe of climate disclosures is an incomplete patchwork of voluntary information presented in different places using different formats," he said in a statement. "We are hopeful that this update to the SEC's disclosure rules is able to move efficiently through the regulatory process so investors can have clarity on the decision-useful climate information they need."
Ms. Peirce, who voted against the proposal, said if implemented, it would undermine the existing regulatory framework and hurt investors, the economy and the SEC itself. Among her concerns laid out at the SEC's meeting Monday, Ms. Peirce said that while the existence of climate change itself is not particularly contentious, "how best to measure and solve the problem remains in dispute." She feared the SEC would be drawn into disputes as it reviews, for example, the climate models and assumptions underlying companies' metrics and disclosures about progress toward meeting climate targets. "This proposal could inspire future more socially and politically contentious disclosures, which would undermine the SEC's reputation as an independent regulator," she added. "Meanwhile, we have other important work to do, and the climate initiative distracts us from it."
Republicans on Capitol Hill have pushed back against regulators at the SEC and Department of Labor promulgating rules related to climate change and ESG investing. Sen. Pat Toomey, R-Pa., and ranking member on the Senate Banking Committee, said in a statement that the proposal "hijacks the democratic process and disrespects the limited scope of authority that Congress gave to the SEC. This is a thinly veiled effort to have unelected financial regulators set climate and energy policy for America. Forcing publicly traded companies to gather and report global warming data — almost none of which is material to the business's finances — extends far beyond the SEC's mission and expertise."
The proposal's comment period will be open for 60 days following publication on the SEC's website or 30 days upon publication in the Federal Register, whichever period is longer.
