SEC to adopt new climate rules that are much weaker than originally proposed

The Securities and Exchange Commission is They are expected to adopt new rules on Wednesday detailing whether and how public companies must disclose climate risks and how much greenhouse gas emissions they produce, but they will place fewer requirements on companies than the original proposal made about two years ago.

The rules are a step toward requiring companies to inform investors about both their climate emissions and the business risks they face from flooding, rising temperatures and weather disasters. An earlier and more comprehensive proposal faced strong Republican backlash opposition from a range of companies and industries, including fossil fuel producers.

The key difference: Under the original proposal, major companies would have been required to disclose not only the emissions to the Earth from their own operations, but also the emissions produced in what is known as a company’s “value chain.” company – a term that includes everything from the parts or services purchased from other suppliers, to the way people who use the products ultimately dispose of them. The pollution created throughout this entire value chain can increase.

Now that requirement has disappeared.

In addition, the largest companies will have to report the emissions they directly produce, but only if the companies themselves consider the emissions to be “material” or of significant importance to their bottom line, a qualification that gives companies room to maneuver. Thousands of smaller companies are exempt, another major change from the original proposal, which would have required all publicly traded companies to disclose their direct emissions.

The requirement that companies must mention the climate expertise of members on their board of directors has also disappeared from the final rules.

But the directive requiring companies to disclose significant risks related to climate change — for example, the risks to waterfront properties owned by a hotel chain from rising sea levels and storm surges — remained in place.

Supporters of stricter disclosure requirements said the omissions could undermine the rule entirely. “Thanks to corporate lobbying, disclosure of the very real financial risks of climate change has fallen victim to the culture wars,” said Allison Herren Lee, former acting chairman and commissioner at the SEC, who has advocated for more climate-related disclosures.

Climate disasters, including extreme weather events such as hurricanes, floods and droughts, are taking an increasing toll on people and businesses around the world, disrupting supply chains and damaging crops. In 2023, the United States experienced a record 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’.

But Jay Clayton, who chaired the SEC under Donald J. Trump, said the commission had been “arrogant” in proposing the stricter requirements, saying it had not shown that the data was relevant to financial returns for investors. Instead, he said, many investors seemed to want these requirements “for political, social and other reasons.”

Some Democratic lawmakers also opposed the SEC’s original proposal, believing it would be a burden on small farmers.

Nearly two years ago, the SEC first proposed climate rules. Since then, it has considered more than 16,000 comments from companies, business groups and others about the potential regulations.

Many companies argued that the regulations would be burdensome, expensive, and would not provide investors with much useful information. Republican lawmakers have also pushed back on the business community’s embrace of environmental, social and governance principles, known as ESG.

In recent weeks, more and more financial firms have withdrawn their own climate commitments, indicating that political pressure has had an effect.

Also weighing on the SEC as it considers the final rules is a Supreme Court that has demonstrated a willingness to take on conservative regulatory challenges and limit agency power, including the power to regulate greenhouse gas emissions to regulate.

With the specter of lawsuits in the background, it was clear that the SEC was trying to issue a rule on solid legal ground, said Cynthia Hanawalt, director of the financial regulation practice at the Sabin Center for Climate Change Law at Columbia Law School.

The removal of requirements to report emissions produced across the value chain has certainly helped reduce the risk of litigation by addressing opposition from some industry opponents. “Nevertheless, I think they will still have to deal with a fossil fuel industry and associated politicians who oppose this rule in any form,” she said.

“The opposition we’ve seen is largely driven by the fact that we have a huge fossil fuel industry and lobby in the United States,” she said. “That is why there is such enormous opposition here that has not arisen in other jurisdictions around the world that are putting forward similar climate-related disclosure rules.”

Business groups led by the American Chamber of Commerce have already filed a lawsuit to block a California law that goes further and still requires companies to disclose emissions from suppliers and others.

At the same time, environmental groups are preparing to file a lawsuit, saying the final rules are flawed. The Sierra Club said it is “considering challenging the SEC’s arbitrary removal of key provisions from the final rule.” And it would also defend the commission’s authority to implement such a rule in the first place, the Sierra Club said, something industry lobbying groups and conservative politicians were expected to challenge.

There is evidence that climate disclosure rules could have an effect on human greenhouse gas emissions, the main driver of climate change, said Asaf Bernstein, a professor of finance at the University of Colorado Boulder who focuses on climate issues. “In other countries, when they have introduced disclosure requirements, there have apparently been emissions reductions in response to those disclosures,” he said.

Even as SEC rules face challenges, some companies have begun voluntarily reporting more information about their emissions and the risks of climate change, said Amelia Miazad, who directs the Business in Society Institute at UC Berkeley’s law school.

“There is a clear demand from investors for the information, and so the business community will have to respond to that demand,” she said.

Christopher Flavelle contributed reporting from Washington, DC