What the SEC vote on climate disclosures means for investors

Securities and Exchange Commission Chairman Gary Gensler testifies before Congress on July 19, 2023.

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‘A sensible rule to protect investors’

Rule does not include ‘Scope 3’ disclosures

“This is not the rule I would have written,” Crenshaw said, citing omissions such as Scope 3 reporting. “They are a bare minimum,” though ultimately better than no rule at all, she added.

Instead, the final rule will require companies report Scope 1 and 2 emissions if they’re deemed material to investors. These are direct emissions caused by company operations and indirect ones from the purchase of energy (from renewable sources or coal-burning power plants, for example).

Only “large accelerated filers” and “accelerated filers” must disclose Scope 1 and 2 emissions. These categories include corporations with an aggregate global market value of $700 million or more, and $75 million or more, the SEC said.

Challenges could be forthcoming

The rule comes as the Biden administration pledged to cut U.S. greenhouse gas emissions in half by 2030. In 2022, President Joe Biden signed the Inflation Reduction Act, the largest federal investment to fight climate change in U.S. history.

It also follows other U.S. and international climate disclosure regimes, such as in the European Union and rules recently passed in California.

Congressional and legal challenges to the rule “are likely,” Jaret Seiberg, financial services and housing policy analyst at TD Cowen, wrote last week in a research note.

While proponents say the SEC rule is well within the scope of its mission to protect investors, others say the agency overstepped its authority.

Last year, a group of House and Senate Republicans sent a letter to SEC Chair Gary Gensler criticizing the proposal, saying it “exceeds the [agency’s] mission, expertise, and authority.”

The rule is “climate regulation promulgated under the Commission’s seal,” and “hijacks” the agency to promote climate goals, SEC Commissioner Mark Uyeda said before the vote on Wednesday.

SEC chair Gary Gensler defended the rule as being consistent with a “basic bargain” in U.S. securities laws.

“Investors get to decide which risks they want to take so long as companies raising money from the public make … ‘complete and truthful disclosure,'” Gensler said in a written statement following the vote. “Over the last 90 years, the SEC has updated, from time to time, the disclosure requirements underlying that basic bargain.”

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