What’s next for the SEC’s climate disclosure rule proposal?
There is greater potential for reducing the risk of catastrophic climate change if companies begin to accurately disclose their emissions and climate risks. Only 36% of North American companies have announced plans to reduce global emissions, and any effort to tame carbon must include US-based companies.
That’s why the Securities and Exchange Commission is to be commended for its decision to issue ambitious new climate disclosure rules. The proposed regulations would require companies to explain what they are doing (or not doing) to reduce their climate footprint, and this is a crucial step forward. According to the proposal, companies must finally disclose their climate impact in three main ways: the environmental impact of business activity, the direct impact of their operations on climate change and the carbon footprint of their suppliers, their business trips and their business. Infrastructure.
Yet even though the ink has barely dried on these new SEC climate rules, it’s important to recognize that the 510 pages of regulations may never be enacted. There is no consensus in Congress to act on the climate issue, Republican lawmakers have already urged the SEC to withdraw their proposal, and a more conservative U.S. Supreme Court could see the new rules as overbroad. And, state prosecutors also promise to challenge the SEC’s proposal.
So if these rules are dead on arrival, where are the domains of promise? There is a bit.
The SEC’s proposal will likely motivate companies to improve voluntary disclosure of their climate risks and could increase investment in technologies that reduce emissions. A new focus on disclosure could also lead to better climate expertise in the C-suite and more scrutiny of greenwashing.
Possible promising areas
Here’s what could happen next.
First, this push toward climate disclosure could encourage companies to shift strategy, taking steps to shift capital away from fossil fuels and toward renewable technologies and other climate change solutions.
For example, Koch Strategic Partners, a subsidiary of energy conglomerate Koch Industries that has long opposed environmental regulation, has become one of the battery industry’s largest funders. Both Koch and Ford support Solid Power Inc., which works to improve battery technology.
Second, the need for climate leadership is likely to drive companies to add expertise. While companies like Apple, Facebook, Google and Microsoft already report detailed emissions data, many companies don’t have the same level of expertise.
The Big Four accounting firms as well as other professional services firms have already started to invest in climate expertise. Ernst & Young has announced that it will spend $10 billion over the next three years on audit quality, sustainability and technology, and KPMG plans to spend more than $1.5 billion over the next three years. coming years for initiatives related to climate change and training on ESG issues.
Auditing and professional services firms are likely to generate significant revenue from clients seeking to measure and manage greenhouse gas emissions. Even with professional support, many companies will need to make significant progress in developing in-house expertise to meet new climate regulations, even if the SEC’s proposal is significantly changed.
Third, better knowledge of the climate will allow for more scrutiny of green claims, which means that capital will be more likely to be invested in truly sustainable projects. As tougher climate policies are proposed and implemented, the era of corporate greenwashing – and misled investors – may finally be coming to an end.
This could lead to more money for projects like Apple’s Green Bonds which raise capital for projects with environmental benefits, and have recently funded more than one gigawatt of clean energy worldwide, which equates to take 200,000 cars off the road. More companies are likely to follow Apple in investing in truly sustainable projects with more regulations around climate reporting.
The proposal shows a changing landscape for the application
Along with the publication of the proposed rules, the SEC released a Model Regulatory Action. Some states are eager to push the federal government for tougher climate regulations, and it’s possible that an enterprising governor, state legislature, or attorney general will seek to implement part of the SEC playbook. California has been pushing for tougher environmental standards for businesses for years, including setting car pollution and mileage rules higher than federal standards, setting the tone for the rest of the country.
Even if the SEC rules are not enacted, it is likely that the SEC will strengthen enforcement of existing climate disclosures. This can have the biggest impact in terms of stopping the green pucks, especially among asset managers. This could boost the essential, but currently unregulated, carbon offset market by driving out projects that lack environmental integrity.
The SEC’s proposed climate reporting regulations are an important moment for the business community, regardless of the next step in regulation. The business landscape is changing rapidly. The days of ignoring climate risk are numbered as the global community acts to address the threat climate poses to our planet, our communities and our businesses.
This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
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Shivaram Rajgopal is the Kester and Byrnes Professor of Accounting and Auditing at Columbia Business School.
Bruce Usher is a professor of practice at Columbia Business School and co-director of the school’s Tamer Center for Social Enterprise.