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The Impact of Stalling the SEC Climate Disclosure Rule

By Dr. Steven Cohen, Senior Vice Dean, School of Professional Studies; Professor in the Practice of Public Affairs, School of International and Public Affairs

Shortly after the Securities and Exchange Commission’s (SEC) Climate Disclosure Rule was issued this past March, the rule was “paused” as a series of lawsuits attempting to stop the rule were consolidated and are now being adjudicated. While the clever conservative forces attempting to stop the rule believe the SEC does not have the authority to require this disclosure, even a casual review of the Commission’s history demonstrates a gradual expansion of its protection of investors. Conflict of interest disclosures are an example of such an expansion as well as regulation of insider trading. None of that was required when the SEC was started in the 1930s. But the real problem for those attacking this rule is that in a global economy, the SEC is no longer the only body regulating American-based corporations. To do business in Europe, American corporations must adhere to rules that will soon be finalized and then enforced by the European Union. There are also other international bodies, nation-states, and American states working to protect investors by requiring companies to disclose their environmental risks. By stalling the SEC rules, these right-wing ideologues are sacrificing America’s voice in defining these disclosures.

According to Bill Alpert of Barron’s:

“Soon after the Securities and Exchange Commission voted in March to require companies to report their climate risks and greenhouse gas emissions, it paused the rule in the face of a court order procured by a lobby group representing business. While American courts, and voters, decide if they want more such initiatives from the Biden administration, other locales are adding climate considerations to their accounting rules. On Friday, an international group of securities regulators reviewed proposed independence standards for “sustainability” audits. “High quality standards in this area will be important to support high-quality ethics (including independence) for reporting and assurance over sustainability-related information,” said a statement by the International Organization of Securities Commissions. Iosco’s members include securities regulators aiming to harmonize standards in the increasingly borderless international financial system. Iosco was commenting on climate audit rules proposed in January by an international group of standards setters known as the International Ethics Standards Board for Accountants. The ethics board suggests ways to shield auditors’ judgments from their clients’ pressures, zeroing in on independence challenges that crop up in climate exams. Auditors commonly hire outside experts in those audits, for instance, and the experts must be scrutinized for financial conflicts that could compromise their independence.” 

Professionals responsible for corporate auditing around the world have begun the work required to regulate and assure the quality of sustainability reports. This inevitably includes definition of terms and measures, as well as codification of best practices. American companies will be left out of this discussion when compliance with SEC rules might provide an acceptable alternative to non-U.S. regulators. Reciprocity could be negotiated to reduce the number and nature of reporting requirements, but if we are not regulating the disclosure of environmental risk, American companies will be at the mercy of foreign or state-level regulators. Nevertheless, even as American conservatives work to stall U.S. regulation, sophisticated corporations continue to invest substantial resources in measuring and reporting their climate risks. They recognize that it is imprudent to ignore these risks.

Amanda Carter of the World Resources Institute argues that “corporate climate disclosure has reached a tipping point” and that “companies need to catch up.” According to Carter:

“…Companies have long seen the global patchwork of disclosure frameworks as an impediment to reporting. But these are consolidating as regulators develop a better understanding of how climate change affects business performance. This is making reporting standards clearer and thus easier for firms, dispelling one of the key arguments against climate disclosures. The bottom line is that climate disclosure has reached a tipping point. Mandates are becoming the norm. And where differences lie between more stringent and ‘weaker’ mandates, current trends point toward the stronger rules pulling ahead. Major global firms should prepare to start reporting across more than one jurisdiction and meeting more robust requirements. Meanwhile, a greater number of smaller firms will be required to report which have not done so before. For all involved, preparation should begin now.”

Carter notes that reporting requirements in California and proposed in New York are more rigorous than the SEC’s rule and that companies preparing for compliance would be prudent to err on the side of more comprehensive reporting of environmental risk. It’s difficult to imagine a major corporation that does not do business in New York, California, or Europe. Carter also cites an important study of institutional investors that found that 79% of these investors found climate risk disclosure equally as important or more important than disclosure of financial risk.

Opposition to mandatory climate risk reporting is the result of the failure of some American businesses and lobbying groups to understand that reducing and reporting on environmental risk is an indication of management competence having nothing to do with ideology. Investors are insisting on these reports, which is why even without a single, rational system of reporting, American corporations are increasingly disclosing environmental risks. Institutional investors are under pressure from institutional stakeholders to consider environmental risks when making investment decisions. Companies face internal and external pressure to measure, report, and reduce their greenhouse gas emissions as well as their vulnerability to extreme weather events.

The effort to oppose greenhouse gas reduction and promote fossil fuels by Donald Trump, conservative business groups, and conservative elected officials in my view is an effort to prop up a doomed business. Trump recently hosted fossil fuel executives at a dinner where he asked them to raise a billion dollars for his presidential campaign. According to a report by Josh Dawsey and Maxine Joselow in The Washington Post

“As Donald Trump sat with some of the country’s top oil executives at his Mar-a-Lago Club last month, one executive complained about how they continued to face burdensome environmental regulations despite spending $400 million to lobby the Biden administration in the last year. Trump’s response stunned several of the executives in the room overlooking the ocean: You all are wealthy enough, he said, that you should raise $1 billion to return me to the White House. At the dinner, he vowed to immediately reverse dozens of President Biden’s environmental rules and policies and stop new ones from being enacted, according to people with knowledge of the meeting, who spoke on the condition of anonymity to describe a private conversation. Giving $1 billion would be a “deal,” Trump said, because of the taxation and regulation they would avoid thanks to him… Trump’s remarkably blunt and transactional pitch reveals howthe former president is targetingthe oil industry to finance his reelection bid.”

Setting aside for a moment the incredible corruption of Trump’s offer of a “deal,” it does represent a strain of thinking in some parts of America’s business and political worlds that is dangerous, delusional, and out of step with the actual world we live in. That world includes investors and corporate executives who understand the material connection of climate risk to financial risk. If Trump and the business forces fighting the SEC climate rule prevail, American businesses will still need to operate in a world where renewable energy technology will continue to advance and environmental threats will cost companies and localities massive amounts of money. They will still need to measure, report, and reduce their greenhouse gases. Because they think that they will somehow be immune to that reality, the odds are they will be less prepared to cope with it.

Hopefully, most American businesses recognize how the world works and based on the massive corporate investment in sustainability reporting, the impact of the SEC delaying climate reporting may not be substantial. However, if the courts end up deciding the SEC does not have the authority to regulate sustainability reporting and they continue insisting that regulatory agencies require explicit authority to make “major decisions,” our ability to navigate a more complex and interconnected global economy will be compromised. The inability to regulate would impair our ability to compete in a global economy. It would also endanger the health and welfare of the American people. That’s a high price to pay for ideological jurisprudence.

Views and opinions expressed here are those of the authors, and do not necessarily reflect the official position of Columbia School of Professional Studies or Columbia University.


About the Program

The Columbia University M.S. in Sustainability Management program offered by the School of Professional Studies in partnership with the Climate School provides students cutting-edge policy and management tools they can use to help public and private organizations and governments address environmental impacts and risks, pollution control, and remediation to achieve sustainability. The program is customized for working professionals and is offered as both a full- and part-time course of study.

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