Tag: climate disclosure regulation
SEC’s climate disclosure rules probably pushed back until fall
Here’s a scoop from S&P Global Market Intelligence : apparently, the climate disclosure rulemaking that was targeted for adoption in April 2023 has now been pushed back to the fall. At least that’s the information that former SEC Commissioner Robert Jackson has learned and revealed on a recent webinar. But given the thousands of comment letters and all the controversy over the climate disclosure rules, including pushback from politicians claiming the SEC had no authority to adopt climate disclosure rules, are you really surprised?
Weaponization of the SEC? The House questions the SEC Chair
Will “weaponization” be Merriam-Webster’s word of the year? On Wednesday, SEC Chair Gary Gensler testified to the House Subcommittee on Financial Services and General Government on the topic of SEC appropriations. The SEC is asking for a 12% increase. Why? Gensler cited tremendous growth in the markets and the “wild west of crypto,” which, he said, without prejudging any one token or exchange, was “rife with non-compliance”; the SEC was stretched thin in its efforts to investigate, but “must be able to meet the match of bad actors.” In response, Gensler heard from some subcommittee members about heavy-handed enforcement, the “blistering pace” of rulemaking (which distracts the SEC from the work some members perceived as its real mission), and capital formation treated as just an afterthought. There was certainly some time spent questioning the vast number of proposals the SEC was making (which Gensler reminded the member was fewer than proposed during Jay Clayton’s tenure) and some attention to staffing issues highlighted in the Inspector General’s report. By far, however, the spotlight was on climate, with much of the subcommittee going on a tear—well, as much of a tear as possible in a five-minute allocation of time—about the SEC’s climate proposal. One member even went so far as to suggest that the climate proposal represented a “weaponization” of the SEC. What impact will these criticisms have on the proposal? (See this PubCo post.)
SEC floats dialing back climate disclosure rules
The SEC has apparently let it be known—or perhaps a few reporters are especially intrepid—that it may well pare down and loosen up some of its proposed rules on climate disclosure (see this PubCo post, this PubCo post and this PubCo post). In this article in Politico and this article in the WSJ, “three people familiar with the matter” and “people close to the agency” told reporters that SEC Chair Gary Gensler is “considering scaling back a potentially groundbreaking climate-risk disclosure rule that has drawn intense opposition from corporate America.” According to Politico, SEC officials “stress that no decision has yet been made,” so time will tell where the final rulemaking will end up.
Renee Jones to leave SEC; Erik Gerding to be named Corp Fin Director
On Friday, the SEC announced the departure of Renee Jones as head of Corp Fin. She has been Director of Corp Fin since June 2021 and will be returning to her position on the faculty of Boston College Law School. In her place as Director of Corp Fin will be Erik Gerding, who is currently serving as Deputy Director of Corp Fin. SEC Chair Gary Gensler praised Jones for leading Corp Fin “during a time when we have proposed—and in numerous cases adopted—critical reforms to benefit investors….I am grateful for her counsel, judgment, and deep understanding of the capital markets. Thanks to Renee’s leadership, we have enhanced investors’ access to the full, fair, and truthful information as required by our securities laws to make informed investment decisions.” Gerding remarked that he “look[s] forward to continuing the work that Renee led at the Division over the last year….” Will we see any difference in Corp Fin rulemaking? Time will tell.
Will climate disclosures translate into climate action?
In light of the billions that even the SEC’s economic analysis estimates would be spent complying with its proposed climate disclosure regulations (see this PubCo post, this PubCo post and this PubCo post), will those disclosures catalyze real climate action? In this recent EY Global Climate Risk Barometer, accounting firm EY analyzed why, notwithstanding the vast amounts spent on climate disclosures, they “are still not translating into practical strategies to accelerate decarbonization.” In fact, EY pointed out, “global energy-related carbon dioxide emissions rose by 6% in 2021 to 36.3 billion tonnes [a metric unit of mass equal to 2,240 lbs], their highest-ever level, according to the International Energy Agency.” Will companies be able to “close the major disconnect between the disclosures they are making” and “their own transformation journeys”? Is integrating climate risk into the financial statements the key? Is climate risk disclosure just a “box-ticking exercise” or, by enabling accountability, can climate disclosures help to accelerate “the decarbonization process”?
What happened at the 2022 PLI Securities Regulation Institute?
At the PLI Securities Regulation Institute last week, the plethora of SEC rulemaking took some hits. It wasn’t simply the quantity of SEC rules and proposals, although that was certainly a factor. But the SEC has issued a lot of proposals in the past. Rather, it was the difficulty and complexity of implementation of these new rules and proposals that seemed to have created the concern that affected companies may just be overwhelmed. Former Corp Fin Director Meredith Cross, a co-chair of the program, pronounced the SEC’s climate proposal “outrageously” difficult, complicated and expensive for companies to implement, and those problems, the panel worried, would only be compounded by the adoption of expected new rules in the EU that would be applicable to many US companies and their EU subsidiaries. (See this Cooley Alert.) The panel feared that companies would be bombarded with a broad, complicated and often inconsistent series of climate/ESG disclosure mandates. Single materiality/double materiality anyone? But it wasn’t just the proposed climate disclosure that contributed to the concern. Recent rulemakings or proposals on stock buybacks, pay versus performance and clawbacks were also singled out as especially challenging for companies to put into effect.
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Final climate rules are months away, reports Bloomberg
Here’s a big scoop from Bloomberg: the “SEC is months away from finalizing expansive new climate disclosure requirements as the agency juggles investor demands for more transparency, tech glitches and a tough Republican legal threat.” Are you really surprised though? That was a substantial, complex undertaking that elicited thousands of comments and a lot of pressure from opponents and proponents. Then, in July, came another challenge, as SCOTUS handed down West Virginia v EPA, which, although not directly addressing the SEC’s climate proposal, sure seemed to put a bull’s eye on it. (See this PubCo post.) Not to mention the SEC’s technical glitch, which led to a reopening of the comment period for a couple of weeks until November 1. (See this PubCo post.) That alone would have been enough to smoke the October target date set in the most recent SEC agenda. (See this PubCo post.) But what is real timeframe? Well, who knows. According to Bloomberg, SEC Chair Gary “Gensler has declined to give a timeline for finishing the climate regulations in recent public appearances, repeatedly pointing to thousands of comments that still need to be reviewed.” Bloomberg also reports that SEC “officials in private conversations have given no indication they’ll finish the rules this year, according to several people in contact with the agency.”
SEC Chair Gensler faces Senate Committee—will the SEC moderate Scope 3 disclosure requirements?
Last week, SEC Chair Gary Gensler gave testimony before the Senate Banking, Housing and Urban Affairs Committee. While his prepared testimony largely revisited familiar themes, the Committee’s questioning offered a bit more insight. Committee Chair Senator Sherrod Brown cautioned at the outset that Republicans have “bellyached”—and he assumed would today—about Gensler’s “ambitious agenda,” but added that, “if Wall Street and its allies are complaining,” that means Gensler is doing his job. And right on cue, Ranking Member Senator Pat Toomey cast doubt on recent SEC actions that, he said, raised questions about how well the SEC was handling its responsibility to facilitate capital formation. Where was the SEC, he asked, when some crypto lending platforms “blew up,” resulting in billions in losses? And while the SEC has failed to provide regulatory clarity for the crypto market, he contended, it has instead been busy proposing many controversial and burdensome rules that are outside the SEC’s mission and authority. After West Virginia v. EPA (see this PubCo post), he warned, the SEC should consider itself to be on notice from the courts. In particular, some on the Committee—on both sides of the aisle—took aim at the SEC’s climate disclosure proposal—particularly Scope 3 disclosure—and Gensler’s responses made clear that he heard the criticisms, both from the Committee and from commenters, and that there would be some changes to the proposal as the SEC tries to “find a balance.” But far would those changes go?
California’s proposed Climate Corporate Accountability Act goes belly up—for now at least
“California Approves a Wave of Aggressive New Climate Measures” was a headline in the NYT on Thursday, and that included a “record $54 billion in climate spending, a measure to prevent the state’s last nuclear power plant from closing, sharp new restrictions on oil and gas drilling and a mandate that California stop adding carbon dioxide to the atmosphere by 2045.” But one climate bill didn’t make the cut. That was SB 260, California’s Climate Corporate Accountability Act, which, on Wednesday, failed to pass in the California legislature, notwithstanding much ink being devoted to it this past year (see, e.g., this Bloomberg article). Had the bill been signed into law, it would have mandated reporting and disclosure of GHG emissions data—Scopes 1, 2 and 3—by all U.S. business entities with total annual revenues in excess of a billion dollars that “do business in California.” Those requirements for GHG emissions reporting and attestation exceeded even the SEC’s proposed climate disclosure proposal. (See this PubCo post.) And, under the existing broad definition of “doing business” in California, the bill would have captured a large number of companies, estimated to be about 5,500, including many incorporated outside of California. (Nothing new for the Golden State—see this PubCo post and this PubCo post.) According to Politico Pro, Scott Wiener, the sponsor of the legislation, said in a statement that he was “deeply disappointed in this result….If we want to avoid a full climate apocalypse, we need to understand corporate pollution—all the way down the supply chain.” He added that “he ‘won’t give up’ and that he’s ‘very likely’ to reintroduce SB 260 next year.” Time will tell.
What do the public comments on the SEC’s climate disclosure proposal tell us?
In this July report, Responses to the SEC’s Climate Proposal, KPMG discusses various themes and observations that it gleaned from its review of comment letters on the SEC’s 510-page comprehensive and stunningly detailed climate disclosure proposal issued in March. As you probably recall, the proposal was designed to require disclosure of “consistent, comparable, and reliable—and therefore decision-useful—information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments.” KPMG found that the sentiment about climate standard-setting as a general concept was favorable, with 29% of those commenting very supportive and 50% supportive of the concept. Only 21% had a negative response—12% very unsupportive and 9% generally unsupportive. But that positive attitude toward the general concept did not necessarily translate to support for the specific proposal from the SEC.
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