SEC to Vote on Climate Disclosure Rules

Companies may be required to provide broader climate-related disclosures to investors, but would such a requirement survive legal challenge?

In 2007, a handful of states, public interest groups and New York City asked the Securities and Exchange Commission to mandate broader disclosure of climate-related risks. They may be about to get their wish.

Yesterday the SEC posted public notice that it plans to vote on "whether to propose amendments that would enhance and standardize registrants' climate-related disclosures for investors." The vote will be held on Monday, March 21.

Advocates of expanded disclosure, including SEC Chair Gary Gensler, argue that such requirements are necessary to ensure that investors are properly informed of the risks climate change, and climate change policies, pose to their investments, and that climate-related risks are accurately reflected in share prices. Critics question whether climate risks are sufficiently distinct from other broad, systemic or policy-related risks to justify specific disclosure requirements. There are also questions as to whether climate-related disclosures could be held to the same legal standards for accuracy as are more traditional financial disclosures. Last year, I moderated a webinar (embedded below) exploring these questions featuring Professors Madison Condon (BU) and Kevin Haeberle (W&M) for the Coleman P. Burke Center for Environmental Law at Case Western Reserve University.

The timing of the SEC's decision is interesting because the Supreme Court's pending decision in West Virginia v. EPA could well affect the SEC's authority to mandate broader climate disclosures and increase the litigation risk to any new disclosure requirement. Should the Supreme Court conclude that Section 111 of the Clean Air Act can only be read to authorize traditional pollution control measures on specific facilities, as opposed to broader system-wide changes within the power sector, parallel arguments could be made against the SEC's authority under existing law to mandate broader climate or other environmental disclosures. If the former shift in regulatory authority is the sort of "major question" that requires legislative approval, it would seem the latter is too.

Comments

[Queen Amalthea]

I don't think this is a major question analogous to WV v. EPA (it's a disclosure regulation vs. a pretty major environmental one) but I think it's bad policy. If investors care about this sort of thing they can push companies to disclose it and too many disclosures, like too many warnings in product liability, can drown each other out.

[Krayt]

If only we lived in a democracy where Congress addressed sketchy reasoning to take over regulation impacting trillions of dollars.

But sadly, no. "Democracy good" when it increases our power directly. "Democracy bad" when it gets in the way of sketchy power increases.

It's almost like...like...like it's all about the power.

[Queen Amalthea]

I don't think the SEC is anti-Democratic, our Representatives voted it in, our elected Executive directs it and our Representative can at any time vote to reverse it. The fact that they don't do so in the way you'd like isn't anti-democratic (quite the reverse, actually).

[DaivdBehar]

The SEC is woke. It is generating for woke Birkenstock footed wokes. Corporations need to address their progress toward forced diversity, and the hiring of diverses.

[Rossami]

Yeah, I also don't see this SEC decision as vulnerable to the major questions doctrine. This is just disclosure, not direct regulation - and the wording the the SEC's authority to compel disclosure is very broad.

And I agree that it's bad policy. Investors are perfectly capable of coercing companies into disclosing practices that they care about.

[bernard11]

Investors are perfectly capable of coercing companies into disclosing practices that they care about.

Leaving all else aside, this is simply not true. There are a host of issues that make it very difficult for investors to influence management and disclosures.

[Commenter_XY]

Critics question whether climate risks are sufficiently distinct from other broad, systemic or policy-related risks to justify specific disclosure requirements. There are also questions as to whether climate-related disclosures could be held to the same legal standards for accuracy as are more traditional financial disclosures.

^^^ This

I have to wonder if the bureaucrats at the SEC ever seriously consider the compliance cost and the downstream impact that added compliance cost has on the business (increased cost legally), their employees (lower benefits, pay) and customers (higher prices). I have no issue with a company touting their 'Green-nitude' to the masses for the PR benefit, but mandating (on pain of legal sanction and penalties) it is something else entirely.

This proposal is fraught with too many opportunities for political mischief.

[MatthewSlyfield]

"I have to wonder if the bureaucrats at the SEC ever seriously consider the compliance cost and the downstream impact that added compliance cost has on the business (increased cost legally), their employees (lower benefits, pay) and customers (higher prices)"

Don't be silly, of course not.

[Gasman]

Just wait until a business discloses that climate 'risk' is good for business. A longer growing season with greater precipitation in the north central corn/wheat growing states does not exactly seem like a negative risk.
But it is not the outcome the climate hysterics want as a narrative.

[Longtobefree]

How will a corporation accurately disclose the impact of tomorrows regulations issues by fanatics?

Vote for fascists, get fascism.

[Number 2]

I am surprised The SEC hasn’t yet adopted an emergency rule declaring that any publicly traded company that does not mandate that its employees be vaccinated against Covid is engaging in securities fraud.

First we have OSHA trying to pursue a public health agenda under the guise of “workplace safety.“ Now we have the SEC trying to pursue a political climate change agenda under the guise of “securities regulation.” And people wonder why libertarians and classic liberals despise the administrative state.

[Krayt]

In many corrupt countries, they look forward to reasoning like this as it's a wonderful, facetious virtue signal to publically announce when getting in the way of business, let's go in the cloak room, something happens, oh look, the regulation is reduced some.

This is not a sad side effect of power. It is the reason people go into government. It is government working as designed.

[Queen Amalthea]

Oh come on, the overlap between workplace safety and public health is much more reasonably posited than what you're talking about.

[Stephen Lathrop]

Climate change risks ought to be disclosed to the extent companies consider them in their strategic planning. To the extent that they do not consider them, members of the board should be held liable to the shareholders.

[rsteinmetz]

A whole new way lawyers can file shareholder law suites and extract fees from companies while accomplishing little.

[Number 2]

How about the shareholders being liable for not taking it into consideration before buying the stock? Doesn’t the investor have some responsibility when it comes to investing in a company?

[Stephen Lathrop]

My impression had been that a publicly held company took on an obligation to tell shareholders what it was doing.

What constitutes investment wisdom is another topic.

[Ben_]

The risk from climate change is like the risk from Covid: government will try to destroy lives and hurt people as much as they possibly can to mitigate a very small, extremely exaggerated risk.

Not sure how companies are supposed to disclose that.

"If you believe prophecy, we might anticipate some issues by the year 2150. We'll update this when more facts are available."

[Tom for equal rights]

The only risk of climate change in the short term / mid term horizon is the failure to comply with regulatory demands by government agencies. The actual risk of climate change, if any, doesnt kick in for 50-75+ years, well beyond the point that the financial impact could affect the company and be measured by any reasonable effort.

[BravoCharlieDelta]

Do they have to calculate the risk of the Great Commie Reset?

[apedad]

FFS you climate deniers are stupid.

This isn't some mandate that companies have to meet climate/environmental standards.

It's not a mandate to do anything.

Simply, in their (companies') public reports (to SEC, Wall St, etc.), when they opt to make DISCLOSURES about their climate changing procedures/policies/goals that they meet certain reporting requirements.

It's just a standard and a safeguard that whatever their statements are on climate change that investors can be assured they understand what exactly the company is saying.

[Toranth]

Why not sports disclosures?

Each company should be required to file paperwork with the SEC disclosing to any and all investors or potential investors how their company influences sports and any sports-related policies/procedures/goals the company has.

It's just a standard safeguard to make sure that everyone can understand what the company's position on sports is.

[Joe_dallas]

I am certainly impressed with your knowledge of disclosure required under GAAP and the disclosures proposed by the SEC.

The proposed disclosure , as idiotic as could be, is to notify the readers of those finacial statements of the risk to the financial well being and future operations of the company associated with climate change.

[GKHoffman]

"...risk to the financial well being and future operations of the company associated with climate change." You left out "if any" at the end of the sentence. "Based on current information, we don't think there is any appreciable risk to our business from possible climate change, so we are taking no action at this time" should be enough to comply with the rule.

[apedad]

Thanks Joe! I got a Masters degree in Organizational Behavior in 2016 and one of the classes was specifically on reporting and I wrote a paper on the FASB and GAAP.

[Titus PUllo]

Not an MBA? We had to take Org Behavior (taught by a far left prof) and honestly other than cognitive dissonance it was a pretty useless course. the again I'm more of a Hayek/Mises person than Keynes

[Joe_dallas]

apedad
March.11.2022 at 5:55 pm
Flag Comment Mute User
Thanks Joe! I got a Masters degree in Organizational Behavior in 2016 and one of the classes was specifically on reporting and I wrote a paper on the FASB and GAAP."

Ape - you still got the disclosure wrong.
https://www.sec.gov/news/public-statement/lee-climate-change-disclosures

https://www.journalofaccountancy.com/news/2021/sep/auditors-management-responsibilities-climate-risks-financial-statements.html

[Ben_]

So they don’t misinform climate zealots about their climate sins/climate piety.

[Titus PUllo]

define climate change first of all? Sort of like white privilege or white supremacy, isn't it? What causes it? And to what degree? you can create complicated models but if you can't test them, they are just models. I spent years researching plasma physics and we had very controlled conditions and still it was a challenge to predict experiments with multiple variables (all non linear). I'm just saying climate models given they are dealing with very dynamic non adiabatic systems are most likely not worth much. If you are having sleepless nights on this topic, start to worry about deficit spending or the attack on liberty by the DC elites. These are real problems.

[Michael Ejercito]

What climate risks would they be?

[Number 2]

If temperatures get warmer, people will drink less hot chocolate, won’t they? Nestlé’s will have to disclose this as climate risk.

[Kazinski]

Were I in charge of a firm I required to take into account climate change risks, first think I would do is ignore any climate models.

I would use the 50 year UAH NASA satellite record, which measures troposphere temperatures globally. The Troposphere according to AGW theory is exactly where Long Wave IR will be absorbed by greenhouse gasses, H2O, CO2, CH4, and NO2.

Since it shows a modest amount of warming 1.3c per century, and I'd leave it that.

Same with sea level rise, both NOAA and NASA have independent systems to monitor sea level rise, with tidal gages going back a century and the satellite record going back 40 years with remarkable agreement when you take into account local subsidence and Isostasy, that's what I'd use for that.

We spend hundreds of millions collecting the data, then the IPCC ignores the data and runs a simulation.

It's kind of like paying 10 grand for Superbowl tickets, then playing the game on Madden in the skybox to see who wins and what the score is.

[Titus PUllo]

Gensler is out of his league here. He isnt' a physicist or chemist and is not qualified to make a judgement on so called man made climate change and if so what are the key drivers to be reporting on.

JC..this guy is like the class far left bolshie who put aside his commie views to make money on corrupt wall street probably via the Fed's printing press. Just go to some island buddy and play and leave America alone.