U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler testifies before the Senate Banking, Housing and Urban Affairs Committee’s oversight hearing on the SEC on Capitol Hill in Washington, May 14. September 2021.
Evelyn Hockstein | Swimming Pool | Reuters
The Securities and Exchange Commission wants to know more about what companies are doing about climate change.
The SEC Commissioners will meet on Monday to propose rules to increase disclosure of climate-related risks.
It is part of an ambitious regulatory program launched by SEC Chairman Gary Gensler. More than 50 proposed rules are under review by the SEC, one of the most ambitious regulatory programs in decades.
However, climate disclosure rules can be particularly controversial.
“Investors increasingly want to understand the climate risks of companies whose stocks they own or can buy,” Gensler said in a July 2021 statement. “Investors are looking for consistent, comparable and decision-making disclosures so they can put money into companies that fit their needs,” he said.
The SEC will publish details of its proposed rules late Monday morning. However, based on previous speeches Gensler has made these rules likely:
Mandatory disclosure requirements. The US has no clear standards for what, if any, corporations should disclose to investors about climate risks. Gensler has previously said that climate revelations should be “consistent and comparable.”
Required to be filed in the company’s annual report (Form 10-K). That will make it visible alongside other information investors use to make investment decisions.
Requires both qualitative and quantitative disclosure. Gensler has previously said that quantitative disclosures can include information related to greenhouse gas emissions, the financial impact of climate change, and progress toward climate-related goals. The SEC will also likely seek to disclose climate risks that are “physical” to investors, such as those caused by hurricanes, floods, or droughts. Qualitative disclosures may include how company management manages climate-related risks and opportunities and how these factors are incorporated into the company’s strategy.
Ask companies to back up their statements. Gensler has previously noted that companies, for example, can claim to be “non-net” in their greenhouse gas emissions but have not provided any information to back up the claim.
Gensler has privately criticized hedge funds that advertise themselves as “green”, “sustainable” or “low carbon”, but are lackluster about the criteria they are using to define themselves. Gensler said he wants fund managers to disclose the criteria and data they use to create these funds.
Expect the impulse to return
While many companies have acknowledged climate change, and some have signaled they are ready to move towards net-zero emissions, the move is likely to provoke an outcry from many in the business community. people are worried about a mountain of new disclosure requirements coming from the SEC, about climate change and many other issues.
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 firms, said: “SIFMA believes that any ESG disclosure rule should provide a balance between regulated disclosures and comparable quantitative information between subscribers, while minimizing registrant compliance costs and ensuring a flexible disclosure regime that can accommodate evolving circumstances.”
Many in Congress are also worried about breaking regulations.
In a statement to CNBC, US Representative Andy Barr (R-KY), a senior member of the House Financial Services Committee who has led the GOP against the climate disclosure rule-making process of the SEC last October, said: “The Securities and Exchange Commission’s (SEC) statutory mandate is to protect investors, maintain fair, orderly, and efficient markets, and Time facilitates capital formation. It’s definitely not about reducing carbon emissions or solving climate change.”
“But the SEC, by getting too involved in environmental policy debates, like climate change, in which they have no expertise … will politicize the agency and undermine its credibility,” he said. it by hurting investors, elevating non-monetary factors above financial returns.”
This is just the beginning of the process
The SEC’s proposed rules, if they are approved by the Commission, are only the beginning of the process.
Once a new rule is proposed, the public comment period will follow, as recently as 30 days from when it was published in the Federal Register or 60 days after it was enacted. , whichever is longer.
The SEC can then respond to comments, request additional comments, or recommend a final rule. The final rule can then be voted on and passed.
Getting to that final vote isn’t always easy, Amy Lynch, president of FrontLine Compliance and a former SEC compliance official, told me in February.
“There has to be an agreement in the department responsible for that rule with the commissioners of the SEC, which can be a very political process,” she told me. “The important thing is, whether the proposal is in the minds of the majority.”
SEC Chairman Gary Gensler will be on the Squawk Box at 2:15 p.m. Monday to discuss proposed climate disclosure rules.
