SEC's Climate Disclosures Rule is Surviving Conservative Backlash
Climate change has been and will continue to be a huge source of financial risk. Last year, the US had to pay $145 billion in damages from floods, fires, and other disasters. Insurance firm Swiss Re predicts that climate disasters will cost as much as $23 trillion by 2050, more than the pandemic and the 2009 Recession combined.
To warn shareholders of the financial risks of climate change, the SEC drafted a more than 500-page rule requiring publicly traded companies to disclose how climate change affects their business, including the emissions from their operations and how their products are used. But conservatives and those with a stake in the fossil fuel industry have been fighting the rule tooth and nail, claiming the call for transparency is a threat to free speech. The American Petroleum Institute (API), for example, suggested that required emissions disclosures are tantamount to "compelled speech,” which was declared unconstitutional in a 2015 court case. Forty Republican representatives have written in opposition to the SEC’s rule. In March, West Virginia Attorney General Patrick Morrisey even threatened to sue the SEC. Although legal experts call this argument "far-fetched,” it’s gained traction and could potentially bar corporate accountability for climate change once again.
CNBC: SEC chief Gary Gensler on agency's proposed changes to climate disclosures, March 21, 2022.
SEC: The SEC & Climate Risk Disclosure | Office Hours with Gary Gensler, July 28, 2021.
Why This Matters
Financial transparency is key to a functioning free market. Corporations should publicly disclose any information that could potentially affect their shareholders. But when it comes to climate change, conservative politicians, fossil fuel interests, and corporate trade groups have worked to ensure these risks remain out of view.
Conservative interest groups have long been bucking common sense when it comes to treating climate change as an economic risk. While the Republican Party as a whole has generally avoided the outright climate denial of the Trump Administration, it has still been blocking much-needed climate policy and punishing states and corporations who take action.
WW0: How To Climate Change, September 23, 2020.
In Idaho, lawmakers want to prevent state government entities from investing in companies committed to ESG and sustainable investing. And in West Virginia, state officials have decided to boycott BlackRock, the world’s largest asset management firm because CEO Larry Fink publicly acknowledged climate change as an economic risk.
To keep global warming under 1.5 degrees, there’s no time for stalling climate action or hiding its financial risks -- sensible rules like those proposed by the SEC will help hold corporations accountable for their role in the climate crisis.
SEC: ESG Investing | Office Hours with Gary Gensler, March 3, 2022.
NBC: Are Major Companies Living Up To Their Net-Zero Pledges To Combat Climate Change?, February 10, 2022.
Precedents For Financial Transparency
While the Right has dismissed the proposed SEC rule, calling it "political activism,” required disclosures for investors have been a part of the stock market since the 1930s. The SEC has guided companies in crises from COVID-19 to Y2K, and established a clear precedent for implementing climate-based regulations.
Moreover, the Financial Stability Board runs a Task Force on Climate-related Financial Disclosures (TCFD), which gives companies recommendations on how to disclose short, medium-, and long-term climate impacts. That system has already been voluntarily adopted by 3,000 companies. Eight countries have passed regulations based on the TCFD, the UK has plans to mandate climate disclosures beginning this April, and the EU has implemented reporting rules.
"Investors put their money where they think there’s a good opportunity and good information,” Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, told Vox. If we don’t have good information, we run the risk of falling behind internationally.”
CNBC: Nasdaq CEO on ESG | We are a disclosure economy, January 12, 2022.