Securities and Exchange Commission Chairman Gary Gensler will testify before Congress on July 19, 2023.
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“Smart rules to protect investors”
“Climate risk is financial risk,” Elizabeth Debus, director of financial regulation and climate risk at the Natural Resources Defense Council, said in a written statement.
“This is a smart rule to protect investors: it gives them access to clear, comparable, relevant information about the steps companies are taking to manage climate risks and opportunities,” Debus said.
Overall, experts say, transparency about climate risks is critical for investors to gauge whether a company’s shares are worth holding or whether its share price is reasonable, for example, if its share price is too expensive given its higher climate risk exposure, or if its share price is reasonable. Is it a good position considering its share price?
“Investors want to be able to accurately price these risks and opportunities when considering mid- to long-term investments,” said Rachel Curley, director of policy and programs at Sustainability America, especially retirement investors. They may have a timeline that’s decades into the future. investment forum, recently told CNBC.
Rules do not cover “Scope 3” disclosures
However, the rule has been watered down from its original version.
For example, the final rule eliminates the requirement to disclose so-called “Scope 3” greenhouse gas emissions. Such emissions that contribute to global warming are emissions along a company’s value chain, such as raw material suppliers or customers who use the company’s products.
For many businesses, Scope 3 emissions account for more than 70% of their carbon footprint, according to Deloitte estimate.
Instead, the final rule will require companies to require Scope 1 and 2 emissions if they are deemed material to investors. These are direct emissions from company operations and indirect emissions from purchased energy, such as from renewable energy or coal-fired power plants.
Challenges may be coming
The rule comes as the Biden administration Commit to cutting U.S. greenhouse gas emissions in half by 2030. In 2022, President Joe Biden signed the Inflation Reduction Act, the largest federal investment in combating climate change in U.S. history.
It also follows other U.S. and International Climate disclosure regimes such as the EU and recent rules Passed In California.
Jaret Seiberg, a financial services and housing policy analyst at TD Cowen, wrote in a research note last week that congressional and legal challenges to the rule are “very likely.”
While supporters say the SEC’s rules are well within the scope of its mission to protect investors, others say the agency exceeds its authority.
Last year, a group of House and Senate Republicans issued a letter SEC Chairman Gary Gensler criticized the proposal, saying it “exceeds (the agency’s) mission, expertise and authority.”
SEC Commissioner Mark Ujeda said before Wednesday’s vote that the rule was a “climate regulation enacted under the commission’s seal” and “hijacked” the agency to promote climate goals.
