The Securities and Exchange Commission voted 3-2 to add disclosure requirements regarding corporate emissions and climate risk
The Securities and Exchange Commission approved one of its most controversial regulations by 3-2 on Wednesday. After a year’s delay that saw intense lobbying and debate, a weaker regulation than originally intended was passed. According to The Washington Post, the SEC received approximately 24,000 comments from interested parties.
The climate disclosure plan in its original version would have required companies to report on emissions throughout the supply chains of which they are a part. Under Scope 3, both customers’ and suppliers’ emissions would have to be reported as well. The Scope was dropped in order to craft a bill that had a better chance of passing through the likely legal challenges.
The final version included a requirement that companies reveal losses due to extreme weather events such as severe storms, wildfires and sea-level rises. Corporate expenditures connected to reaching climate goals also need to be included. These expenditures would include carbon offsets and renewables contracts. Reporting also includes greenhouse emissions created on-site that are of interest to investors.
Requirements elsewhere
The SEC’s move puts US regulations closer in line with those abroad. Large companies in Europe will need to report on emissions and climate risk. The thousands of companies from North America operating in Europe will eventually need to comply as well. The number of such companies is in the thousands.
The Washington Post reports that in February, 2024, the three major stock exchanges in China released new sustainability reporting guidelines for the listed companies. Brazil, Singapore, and the UK all have similar regulations. Furthermore, financial regulators in California and the EU are working on more stringent rules already.
Political divide
The SEC vote split along party lines, with the two Republicans on the commission voting against the proposed regulation. They claimed that the regulation is an attempt to covertly insert a Democratic liberal climate agenda. Commissioner Mark Uyeda said the climate activists were trying abuse the SEC’s position to “hijack and use the securities laws for their climate related goals.”
The split decision leaves the regulation vulnerable to attack via the courts as Republican politicians attempt to keep climate issues out of the board room. West Virginia Attorney General Patrick Morrisey (R) announced within hours of the rule’s passage that nine Republican states, led by West Virginia, would attack the rule al in federal court.
The SEC’s reasoning
Both environmentalists and industrialists are angry with the SEC for passing the legislation in its current form. The SEC is claiming that the ruling will make it easier for investors to get the environmentally related data they need to make informed decisions related to their investments.
