SEC climate-risk rule: Policy by "ill-suited" bureaucrats? Or "comparable information" for investor decisions?

The Securities and Exchange Commission’s proposed rule to require registrants to include certain climate-related information in their registration statements and periodic reports, has set off the expected political firestorm.

By and large, Democrats on Capitol Hill supported the rule, although at least one said that it does not go far enough. Republicans, on the other hand, said that the rule goes too far.

On March 21, the SEC proposed requiring climate-related information to be documented, including:

• Climate-related risks and their actual or likely material impact on a registrant’s business, strategy or outlook.
• The registrant’s governance of climate-related risks.
• The registrant’s greenhouse emissions, which, for accelerated and large filers, would be subject to assurance.
• Certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements.
• Information about climate-related targets and goals and transition plans, if  they exist.
• SEC officials said that the proposed disclosure is similar to ones that many companies already provide based on broadly accepted disclosure frameworks. The new requirements would be phased in over time.

SEC Chairman Gary Gensler said that the disclosures, if adopted, would provide investors with consistent, comparable information that would allow them to make informed decisions.

“Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions,” he said.

He added that companies also would benefit from clear rules of the road. “I believe the SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance,” he said.

House Financial Services Committee Chairwoman Rep. Maxine Waters, D-Calif., praised the proposal, saying it will ensure that corporations are focused on climate change. She noted that her committee has advanced bills to accomplish those goals during the last two Congresses.

“The SEC’s rule will help our nation’s savers and investors to keep more of their hard-earned funds,” she said. “Climate change not only poses an existential threat to our environment, it also threatens our savings and investments.”

But the panel’s ranking Republican, Rep. Patrick McHenry of North Carolina bluntly criticized the proposal, saying the Biden Administration is pushing its climate agenda through the regulatory process because Democrats do not have the votes to enact it in the legislative process.

“I have long recognized the threat climate change poses to communities across America, and thoughtful climate policy—focused on the health and welfare of America’s working class—is long overdue,” McHenry said. “However, it is Congress’ job to set our environmental policy, not ill-suited and unelected bureaucrats.”

The divisions on the Senate side of the Capitol also generally were divided along partisan lines as well.

Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, said that for the first time, the SEC would establish consistent data frameworks, balancing the need to accurately evaluate market risks while ensuring that small businesses are not overburdened.

Sen. Patrick Toomey of Pennsylvania, the ranking Republican on the Banking Committee, was not as impressed.

“This is a thinly-veiled effort to have unelected financial regulators set climate and energy policy for America,” he said.

However, one Democratic senator said the SEC proposal does not go far enough. Sen. Sheldon Whitehouse of Rhode Island said he had hoped that the agency would propose requiring companies to report climate-related political influence activities.

“This is an enormous, missed opportunity on the part of the SEC — a failure of nerve that shies away from a perfectly legal, necessary response to the climate danger we face,” he said. “Investors clamor for such disclosures because climate-related lobbying and influencing activities are the single most material disclosures a company could make to achieve climate safety.”