• October 2, 2022

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The Securities and Exchange Commission received about 14,000 comments to its proposed climate disclosure rules over the past few months. With the comment period now closed, the SEC is feeling the pressure to review and analyze all the comments – which they are statutorily required to do, according to experts – and release the final rules as soon as possible. Some experts expect them before the midterm elections in November. The SEC’s goal, according to SEC chair Gary Gensler, is to give investors the climate risk information they need to make their decisions. “Investors get to decide which risks to take,” he explained to Ceres when the proposed rules came out.

At the recent Greenbiz GreenFin conference in New York, ESG investors – that is, environment, social and governance-focused investors – and corporate leaders, ESG ratings professionals, and activists weighed in on these proposed rules and related issues.

The final rules will be different – the question is, how different?

The final SEC climate disclosure rules will be different from the proposed ones released in March for public comment. There will likely be legal challenges to them, which fall into two buckets, according to Kristina Wyatt, Senior Vice President and Deputy General Counsel of Persefoni and a former member of the SEC team that developed the proposed rules. Wyatt explained her thinking this way on a GreenFin panel with Tim Mohin, Chief Sustainability Officer of Persefoni: “I think those are two lines of debate. One goes to the legal authority that the SEC has, or doesn’t have…Then, the other is just sort of the scope of the proposals, whether they go too far, whether they go far enough, and there’s certainly a lot of debate about that.”

The Business Roundtable (TBR), of C-level executives from some of the most iconic companies – chaired by General Motors CEO Mary Barra and including Apple, Citi, JP Morgan Chase, United Airlines and Walmart – sent a letter to SEC Chairman Gary Gensler, recommending that new proposed rules be developed and released for comment before the new rules are finalized. It’s worth noting that these include companies that have taken aggressive voluntary actions in response to market demands to address climate issues in their own operations, such as GM’s announcement to stop manufacturing gas-consuming internal combustion engine vehicles by 2035 and only manufacture electric vehicles.

TBR’s letter says in part, “While Business Roundtable supports efforts to enhance climate-related disclosure, we believe a number of key provisions in the Proposal, as drafted, are unworkable…..Among other concerns, the Proposal would require registrants to produce overwhelming amounts of information that would not be comparable, reliable or meaningful, much less material, for investors. The Proposal would also subject registrants to significant liability for disclosures that inherently involve a high degree of uncertainty. For these reasons, as well as those laid out below, we urge the SEC to publish a revised proposal addressing these concerns for further comment.”

Investing is inherently risky and based on uncertainty, however, as every disclosure on every investment product or advice emphasizes.

These investors are starting to see better ESG information

Aiesha Mastagni, Portfolio Manager in the Sustainable Investment & Stewardship Strategies Unit of the California State Teachers’ Retirement System (CalSTRS), the nation’s largest teacher retirement fund, said at GreenFin that investors like them are pushing for this disclosure and have been for many years, so it will happen. It’s just a matter of what they ultimately require and when. She added that they are “strong supporters” of the SEC’s push for these rules, ”because I think this is the information that investors really need,” for consistency across companies.

She said she’s starting to see it happen too. “Companies are starting to finally lean in. And so what’s happening there is you’re getting more robust controls, more robust processes, more attention from the CFO and the audit committee. That’s all good news… (because it leads to) the higher quality, more robust, investor grade information that’s on par with some of the financial information.“

So, get started now

Therefore, she and Kristina Wyatt, and other experts at GreenFin suggested companies start now to prepare, if they haven’t already. Companies are going to have to track and report the impact of climate on their businesses, including greenhouse gas (GHG) emissions, risks and opportunities, so companies should get their infrastructure in place to do so now.

Regardless of what the final SEC climate disclosure rules end up requiring, they will happen. “So what I would encourage companies to do,” Wyatt explained at GreenFin, “is to start to get ready by preparing your green gas inventory, using the greenhouse gas protocol and preparing to report, and to manage your related financial risks and opportunities, building your governance structures, evaluating your risks, looking at your opportunities, building your strategies.”

She added that there are other standards that investors are pushing for that include more ESG-related components than the SEC rules do, including stakeholder impact and diversity.

“Ultimately what matters most,” Mastagni said, “is that intersection, that nexus between business model and ESG. That’s where you should be spending your time.”

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