By adopting the proposed Securities and Exchange Commission (SEC) rules, the fragmented information that companies share about environmental threats would be greatly reduced.
Industry groups and some large companies disagree with how the Securities and Exchange Commission intends to disclose climate change. It is true that it will be more burdensome, but it is a small price to pay for better information about costs and risks that matter to investors.
The SEC had to expect some strong reactions when it announced a proposal detailing the new disclosure rules in March, at a time when polarization is running high.
As a matter of fact, climate change continues to be a hot-button issue even within the SEC, as Commissioner Hester M. Peirce cheekily remarked, “not the Securities and Environment Commission.”
This was before the Supreme Court, in a 6-3 decision on June 30, raised significant questions about just how far the SEC could go in requiring companies to disclose their pollution emissions. However, plenty of others have filled in the void by claiming that the SEC will no longer be able to move forward with rules without Congress’ authorization.
In my opinion, the proposal – and most of the SEC’s work when it comes to putting out new rules – is about improving disclosures for investors, which is critical to the agency’s mandate dating back to the 1930s. Essentially, the Supreme Court’s decision shouldn’t have much of an impact, but it likely will lead to numerous lawsuits and long delays when it comes to implementation, at least in theory.
The SEC must also contend with the controversy surrounding its move for more information about businesses’ environmental impact even as those battles play out.
Climate disclosures proposed by the SEC encompass two areas: corporate pollution as well as pollution caused by customers and suppliers; the predicted rise in climate threats – such as increased frequency and severity of storms – could have a significant impact on companies’ financial prospects.
In letters submitted to the SEC, companies and lobbying groups complained that the additional information requested was excessive and would be expensive to compile. There were some who argued that portions of the disclosures should be shielded from liability, including Exxon Mobil.
The new rules have raised valid concerns among businesses, starting with their burden of parsing a proposal that runs to nearly 500 pages. The American Bar Association (ABA) sent a comment letter to the SEC stating that the new rules would add 70 hours of work per filing, as stated by chair of the committee on securities regulation, attorney Jay Knight.
There’s no doubt that climate change affects all kinds of companies. From the increased costs for raw materials to the increasing vulnerability to flooding, and potential increases in spending related to the transition to cleaner energy, the impacts of climate change are already very evident. We believe it is common sense to require companies to disclose climate-related risks that may have a significant impact.
As a result of the new rules, companies will no longer need to disclose as much and as little as they do now. The reason for this is that companies are operating under existing SEC guidelines that were issued in 2010, which left a lot of room for interpretation and few specifics about what information companies should disclose.
Since there is no standardized reporting for climate impact, investors have no idea why companies disclose relatively little about it. Did the company consider the issue insignificant to their business? Another reason might have been behind this?
Investors are especially confused when companies within the same industry disclose differently, or use different metrics or language to express the same thing.
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