How a climate rule was weakened
What should companies tell their investors about the risks of climate change?
The U.S. Securities and Exchange Commission will unveil its long-awaited disclosure rules tomorrow. They are expected to be much weakerReuters reported, than what the agency first proposed more than a year ago, after intense corporate lobbying and a pushback from Republicans.
“The general view is that the rules will be scaled back fairly meaningfully from the original proposal,” said Michael Littenberg, an attorney at Ropes & Gray.
For the first time, all U.S. publicly traded companies will likely be required to disclose significant risks from climate change, as well as their own climate footprints, known as Scope 1 and 2 emissions. But notably, the final SEC rules are not expected to require companies to disclose their Scope 3 emissions, which are produced by suppliers or consumers of a company’s product.
During the SEC’s comment period, companies and business groups flooded the agency with a record number of comments undermining the rules, arguing that disclosure would be burdensome to companies and of limited use to investors.
The political terrain has also shifted. For the past two years, Republicans have waged war on all things ESG – an acronym for environmental, social and governance principles in business.
Even though the SEC has watered down its original proposal, right-wing critics will almost certainly sue the agency anyway — “as surely as the sun rises in the east,” one expert told our sister newsletter DealBook — as part of a broader legal investigation. attack on government agencies and regulators. Climate activists are also likely to file lawsuits, arguing that the new rules don’t go far enough.
“There’s definitely a political element to it,” Littenberg said. “There’s also a degree of pragmatism in terms of trying to craft a rule that is more likely than not to withstand legal challenges.”
The costs of climate change
No matter what the SEC does, climate disasters are taking an increasing toll on companies and people around the world.
Extreme weather – including hurricanes, flash floods, heat domes and snowstorms – causes property damage and supply chain disruption. In 2023, the United States experienced 28 weather and climate disasters, each costing at least $1 billion. This was reported by the National Oceanic and Atmospheric Administration. Treasury Secretary Janet Yellen said this last year losses related to climate change can ‘flow through the financial system’.
Against this backdrop, investors are calling for more information that can help them make good decisions, and regulators are trying to respond.
Think of hotel chains that own vast waterfront properties, agricultural conglomerates that are vulnerable to drought and shipping companies that are squeezed by weather-related disruptions. Investors in these companies could benefit from forcing companies to disclose what risks they face and how they are trying to prepare.
Political backlash
The furor over the SEC rules is further evidence that climate change has become an integral battleground for the culture wars.
Republicans have rejected the idea that companies should care not only about profits, but also about how they affect the environment and society. Conservatives are increasingly attacking so-called “woke capitalism” against many companies that were once their allies, especially on Wall Street.
In response, some financial companies have turned around. Last month, companies like JPMorgan, State Street and Pimco all withdrew from a group called Climate Action 100+, an international coalition of money managers that pushed major companies to tackle climate issues.
Foreshadowing the potential legal arguments aimed at the SEC rules, some Republican lawmakers are questioning whether the SEC even has the authority to require carbon emissions disclosure.
“Congress has not delegated authority to the SEC to require climate disclosures,” said Representative Bill Huizenga, a Republican who heads the House Financial Services Subcommittee on Oversight and Investigations.
But even without SEC rules, climate risk disclosure is becoming commonplace. California and Europe have passed rules requiring major companies to disclose substantial climate data, including in some cases Scope 3 emissions. Other states, including New York and Illinois, are considering similar rules.
The SEC’s rules, while perhaps watered down, continue to push for transparency around emissions and climate risks as part of the financial mainstream.
“The train has already left the station because of climate disclosure, whether it’s climate risk disclosure or greenhouse gas emissions disclosure,” Littenberg said. “If you look at market practice at larger companies, they all already voluntarily disclose this information to varying degrees..”
A climate statesman resigns
John Kerry, President Biden’s outgoing climate chief, does not regret it much. But there is one big problem: world leaders are not providing the trillions of dollars urgently needed to help countries transition to clean energy.
“We need more money,” Kerry told me last month when we spoke in his wood-paneled office at the State Department. “We need to convince more people of the urgency. And I think there is still too much indifference. There are too many delays, too many postponements.”
But Kerry immediately went on the defensive when I asked him why the U.S. contributed just $17.5 million last year to a new fund to help the world’s most vulnerable countries cope with the worst impacts of climate change. Countries such as Germany and the United Arab Emirates have each pledged $100 million. The fact that the US, historically the world’s largest emitter, often struggles to mobilize money for international climate change assistance is a constant source of disappointment for allies.
“We have not been able to get appropriations from Congress on things that say ‘climate,’” Kerry said. But he argued that the Biden administration had provided more than $9 billion in foreign climate assistance last year and was on track to meet its goal of providing $11.4 billion in foreign climate assistance annually by 2024.
“I don’t think we’re ashamed of that, especially when you compare it to the rest of the money that President Biden has put on the table, which is in the billions,” he said.
Kerry will officially resign on Wednesday after serving as Mr Biden’s global climate envoy since 2021. Climate change has been Kerry’s passion throughout his career.
As a U.S. senator, he traveled in 1992 to the Rio Earth Summit, the first United Nations climate summit, to call for action on climate change. As chairman of the Senate Foreign Relations Committee, he helped lead a bipartisan effort to limit greenhouse gas emissions, although that plan never came to fruition. As secretary of state under President Barack Obama in 2016, Mr. Kerry signed the Paris Agreement, a historic global accord that he helped negotiate, with his granddaughter Isabelle on his knee.
(Former President Donald Trump withdrew the US from the Paris Agreement. Biden brought the US back in just hours after his inauguration.)
Kerry said he saw his top job as restoring America’s reputation as a country that can be trusted to do something about climate change. Over the past three years, he has traveled to 31 countries to argue that case.
He called the latest UN climate summit in Dubai, United Arab Emirates, where countries pledged to move away from fossil fuels, “historic.” On the possibility that Trump could win a second term in the November election, he said: “I’m not going to worry about that until or unless it happens.”
At age 80, Mr. Kerry plans to give a seminar on global engagement at Yale University, organize conferences, work with companies and investors to fuel clean energy development, and speak out about importance of tackling climate change. Just don’t tell him he’s retiring.
“For now, I see this as a pivotal year where we need to move and get things done,” Kerry said. “And I have no idea what the future will bring.” — Lisa Friedman