CEOs want SEC climate reporting separate from earnings but concede new rules are likely
Republican lawmakers tell Gensler to leave climate change to legislation, not regulation
CEOs at the powerful Business Roundtable, investor groups and mostly Democratic lawmakers told the Securities and Exchange Commission they’d support mandatory rules forcing publicly traded companies disclose detailed greenhouse gas emissions and other figures that reveal the climate-change impacts and risks to investors.
One of the biggest asks from companies is for the SEC to separate climate reporting from earnings and other disclosures. And some commenters are worried about applying the same rules to smaller companies as large ones.
The SEC’s climate disclosure effort — a priority for Chairman Gary Gensler and the commission’s 3-2 Democratic majority — has just closed its public-comment period, receiving about 300 letters. It is expected to pursue rulemaking in the second half of the year.
The SEC issued guidance in 2010 on how companies should voluntarily report their exposure to risks related to climate change. But now, President Joe Biden this spring directed the Financial Stability Oversight Council, which includes the SEC, to address required climate disclosures.
“Disclosure rates are improving, but we still find that companies only disclose on about two thirds of material topics,” Aron Szapiro, head of policy research at Morningstar, and his team wrote in recent research. “Regulatory mandates improve consistency, quality and completeness of disclosures, and would not be placing a huge new burden on many companies, given the progress already made.”
Morningstar submitted comments to the SEC, saying it believes that corporate reporting and disclosure will continue to be incomplete and inconsistent until there is a regulatory requirement to enhance Environmental, Social and Governance (ESG) disclosures.
The letters and other public discourse has revealed a move toward convergence between the existing independent standards bodies and local country and regional regulators. Many of the public letters emphasized the need for clearer tracking, not a disparate system.
The Group of Seven (G-7) wealthiest countries just wrapped a meeting that called for moves to force banks and companies to disclose to investors their exposure to climate-related risks.
Here’s a sampling of input from companies, trade groups and lawmakers to the SEC.
The Business Roundtable includes chief executives from more than 200 companies responsible for more than 15 million employees and more than $7.5 trillion in combined annual revenues. Its current leadership is headed by Walmart Inc.
CEO Doug McMillon. Late last year, the Business Roundtable came out in support of carbon pricing and other measures in an increasingly climate-friendly stance that surprised some observers. But it also stressed its preference for a regulation-lite approach to keep U.S. firms competitive.
In its SEC letter, the group said it wants a transition period as companies report for the first time and wants companies to report on climate change independent of their regular earnings and other reporting requirements. It wants tailored disclosure rules depending on company size and a “liability safe harbor” for newly mandated metrics and for forward-looking information.
The Chamber of Commerce told the SEC that ESG disclosures shouldn’t go beyond what average investors deem important.
“We look forward to continuing to be a constructive partner as the process continues,” Evan Williams, director of the U.S. Chamber’s Center for Capital Markets Competitiveness, said in a statement.
Uber Technologies Inc.
was one of the first companies to submit a comment letter to the SEC. It is urging the agency to create a comparable reporting system by incorporating disclosure and accounting standards from two nonprofit organizations—the Task Force on Climate-Related Financial Disclosures, which was created by the Financial Stability Board, and the Sustainability Accounting Standards Board.
Walmart also uses the reporting systems from SASB and TCFD and the World Economic Forum has pushed for both.
A group of large technology companies, including Google parent Alphabet Inc.
and Salesforce.com Inc.
said they support consistent and regular reporting on climate-related issues, according to their group letter.
“We believe that climate disclosures are critical to ensure that companies follow through on stated climate commitments and to track collective progress towards addressing global warming and building a prosperous, resilient zero-carbon economy,” the companies told the SEC.
The companies are in favor of a principles-based framework, include relevant greenhouse-gas emissions data, use existing climate reporting frameworks and standards and require climate reporting to be separate from other filings submitted to the SEC — due to the reliance on estimates and assumptions in climate reporting, they say — as well as to give companies enough time to gather and confirm information from third-party providers.
and Intel Corp.
were also among the group that signed on.
The American Petroleum Institute, which represents oil and gas companies, emphasized its recently announced Climate Action Framework. API and its members are currently developing “a concise and uniform template of core GHG indicators to enhance consistency and comparability in reporting across the industry,” it told the SEC. More information on this new reporting template will be released this summer.
API Senior Vice President of Policy, Economics and Regulatory Affairs Frank Macchiarola stressed to the SEC that requiring one-size-fits-all metrics for issuers regardless of sector may not be appropriate due to inherent differences among the sectors.
The Bank Policy Institute, which represents large U.S.-based banks, argued in its comment letter that the SEC should avoid over-prescriptive disclosure standards for banks compared to public companies. The lobbying group also said the regulator should consider separating climate disclosures from securities filings.
the world’s largest asset manager with some $7 trillion under its watch, wrote to the SEC that “because more comparable and consistent climate-related disclosures are in issuers’ as well as investors’ interests, BlackRock supports the SEC mandating climate-related disclosures.”
Rep. Sean Casten, Democrat of Illinois, who is pushing legislation much aligned with current SEC climate-change pursuits, said a level playing field via disclosures will “… empower investors to make smarter decisions, reduce the risk of environmental and financial catastrophes, and harness the power of free markets to ease the transition from fossil fuels to cleaner, cheaper energy sources.”
Sen. Elizabeth Warren, Democrat of Massachusetts, said companies have been let off the hook. “It is time to fight back against giant corporations that want to pollute our environment and ask taxpayers to clean up the mess. That is why we are pushing to give investors and the American public more power to hold corporations accountable for their role in the climate crisis,” she said.
U.S. Senate Banking Committee Ranking Member Pat Toomey of Pennsylvania, and all Republican members of the committee, urged the SEC to reject any proposal to implement new global warming disclosures.
“We do not believe that any further securities regulations to specifically address global warming are necessary or appropriate, and will only serve to further discourage firms from becoming publicly traded, thus denying significant investment opportunities to retail investors,” they wrote.
They also told the SEC they believed activists and not necessarily shareholders would leverage the regulations to advance policy.
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