Critics dubious about whether SEC’s climate proposal would do much
There are many of those in the corporate world that believe that the SEC’s recent climate disclosure proposal is too burdensome or is not in line with typical SEC disclosure requirements (“materiality” and the like). And then there are those that believe that if the SEC’s rules were adopted as proposed wouldn’t do much to help the planet.
For example, regarding the latter, see this note from Mark Trexler:
There’s a lot of excitement about climate risk disclosure, but it’s likely to turn out to be just as amorphous an idea as the initial forays into ESG. Just a few “for examples”: Climate risk tomorrow, or 2100? Climate risk under 1.5 degrees, or the currently most likely 3.5 degrees? First order risks, or second and third order risks? Plausible systemic risks? “Expected risk” (IPCC risk) or long-tail risk? How far out the tail should companies go? Worst case or unacceptable risk? What about compound risks? Risk based on behind-the-science IPCC assessments, or cutting edge incorporating apparent tipping points? Physical risk of regulatory risk? Regulatory risk associated with likely carbon pricing, or the carbon pricing needed to limit climate change to 2 degrees?
The (legitimate) permutations are endless. Unless the climate scenario is defined, climate risk disclosures will have very limited value. But defining the climate scenario would not (!!!) be simple.
Perhaps I am being over-optimistic here about what the proposed SEC rules could achieve. The requirement to disclose details of how companies plan to meet their climate targets could have some real impact, even though disclosure of emissions (even scope 3) has not been particularly effective.
That’s one benefit of being late to the party – there is so much grandstanding now on climate that simply requiring a bit more detail might be effective, especially for companies who are relying on vast quantities of offsets.
Another benefit of tardiness is that the SEC can benefit from all the work done by other regulators, academics and NFPs. It also can’t be accused of going beyond its mandate – though for sure, it will be! Curious to hear others’ thoughts.
And then there is a series of articles penned by Shiva Rajgopal – in this Forbes article, he asks “whether the SEC is trying to standardize the disclosure of inherently idiosyncratic tools to decarbonize, could the SEC have asked more of the Big 4, why we do not see as much investor based support for financial reporting rules, will the climate rules go the way of the conflict minerals rule, will the ISSB then become the de-facto standard setter for U.S. companies and what does materiality mean in this context.”
In my latest post on Forbes, I review the nine objections I have come across against the SEC’s new climate risk disclosure rules: this is Congress’ or the EPA’s job, the SEC caters to large indexers and climate activists, it throttles competition in reporting frameworks, disclosures are too general or represent progressive aspirations, the SEC compels political speech and scope 3 emissions are not material.
Critics might want to actually read current climate disclosures for 50 odd firms in an industry. That might convince some of the need for comparable, consistent, verified disclosures that the SEC advocates.