As Corporate Managers Await SEC’s Final Rule on Corporate Climate Change Disclosures…Hints of Where We Are Going?

by Hank Boerner – Chair & Chief Strategist – G&A Institute

Can you read tea leaves? No doubt that in concept is what both corporate sector and capital markets leaders are doing as they peruse the possible meanings of SEC Chair Gary Gensler’s comments at the the FOSC (Financial Stability Oversight Council) regarding the pending “Final Rule” on corporate climate-related risk disclosure.

Said Chair Gensler to his colleagues as summarized in the public news release: “The SEC has no role as to climate risk. But we do have an important role in helping to ensure that public companies make full, fair, and truthful disclosure about the material risks they face. Already today, issuers are making climate risk disclosures, and investors and making investment decisions based on those disclosures.”

Indeed, a majority of the top one thousand [corporate] issuers by market cap already make such disclosures, including what’s known as Scope 1 and Scope 2 greenhouse gas emissions*. Further, investors representing tens of trillions of dollars in assets are making decisions based on those disclosures.”

The SEC issued a draft rule in November 2022 –“The Enhancement and Standardization of Climate-Related Disclosures for Investors” – which has drawn a dramatic 15,000 comments that the agency is “carefully” reviewing in structuring the Final Rule.

Chair Gensler: “We greatly benefit from public input and, given the economics and the law, will consider adjustments to the proposed rule that the staff, and ultimately the Commission, think are appropriate in light of those comments.”

When can we expect the approval of and final language of the disclosure rule? No “official” word from the SEC chair. But his comments were to a group of influentials in Federal financial and banking regulation, the FSOC.

The Financial Stability Oversight Council was created after the 2008 financial crisis, made up of representatives from the important Federal regulatory agencies, such as Secretary of Treasury Janet Yellen (who chairs the Council). There are 10 voting members (including chairs of the Federal Reserve, FDIC, Commodity Futures Trading Commission, and SEC) and five non-voting members.

In October 2021, the FSOC issued a new report in response to President Biden’s EO 14030, “Climate Related Financial Risk”, and identified climate change as an emerging and increasing threat to U.S. financial stability. At that time, the FSOC member agency SEC had begun to evaluate its corporate and investor disclosure rules and requested public comment on ways to improve climate disclosure.

Key question as we await the release of SEC’s Final Rule on corporate climate change disclosure: Were Chair Gensler’s comments a pro forma update for fellow members of the FSOC, or a signal that the rule with changes that incorporate public input is about to be made public?

*Note that G&A Institute’s comprehensive annual research on corporate ESG / sustainability disclosure by Russell 1000® companies (including the S&P 500®) was cited by SEC Chair Gary Gensler in the press release issued after the meeting.

The release of the rule will be in the tense atmosphere created by “anti-ESG proponents” at federal and state public sector levels.

Republicans in the Congress are busy with attacks on ESG, holding hearings and passing bills designed to reduce the use of ESG metric and methodologies by investors – including public employee pension funds. The SEC’s mission is to protect investors – we’re seeing increased tension now on both sides of ESG issues.

Top Stories

• Chair Gary Gensler’s Remarks before the Financial Stability Oversight Council: Climate Risk Disclosure  https://www.google.com/url?q=https://www.sec.gov/news/speech/gensler-remarks-fsoc-climate-072823&source=gmail-html&ust=1692282800539000&usg=AOvVaw2r1IQOGAvCz6WDym-JMgrN

And updates for you on anti-ESG opposition as SEC prepares to release the Final Rule:

• Republican state officials threaten legal action over company diversity policies (Reuters – subscription may be required)  

https://www.google.com/url?q=https://www.reuters.com/world/us/republican-state-officials-threaten-legal-action-over-company-diversity-policies-2023-07-13/&source=gmail-html&ust=1692282800539000&usg=AOvVaw0rvMsjz4A5aasmQ6gOvIWT
• Republicans Propose New Series of Anti-ESG Reporting and Investing Laws (ESG Today)  https://www.google.com/url?q=https://www.esgtoday.com/republicans-introduce-series-of-anti-esg-reporting-and-investing-laws/&source=gmail-html&ust=1692282800539000&usg=AOvVaw0zu88TboPdTAwYmz_t5Max