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The promise and peril of SEC climate rules

March 23, 2022, 10:28 AM UTC

Good morning.

I took time yesterday to read much of the SEC’s 510-page proposal on climate disclosure, and I reached out to a few trusted CEOs who are knowledgeable on the subject. My conclusion: the SEC did the right thing and for the right reasons. 

First, investors want this. A sizable minority—if not yet a majority—have made sustainability part of their investment strategies. They need good information to act on. Second, many large companies are already providing this information. Again, a sizable minority—if not yet a majority—have committed to “net zero” goals. Even if the future effects of climate change on those companies are uncertain, the costs of the climate transition implied in their net zero commitments are not. Investors deserve to know. And existing disclosures suffer from a “pick your metric” problem. They are neither “consistent, comparable nor reliable,” as the SEC correctly points out. Some standards are needed.

Some business groups object to the SEC’s decision to include Scope 3 emissions—those that come from a company’s suppliers and users. And not without cause: Scope 3 emissions are tricky to calculate and trickier to control. But Scope 3 is where much of the problem lies and also where the magic can happen. As big companies increasingly nudge suppliers to meet measurable standards, their actions have a snowballing effect. Free riders are forced to fall in line or lose business. Leave Scope 3 out, and the free riders have free reign and companies can meet climate goals by simply outsourcing the dirty stuff.

The peril of the proposal is this: By making disclosure a government mandate, the SEC risks turning a meaningful corporate movement into another polarized political debate. One party—dominated by climate deniers and resisters—is already attacking the agency for “overreach,” while the other—led by those who seem to think fossil fuels can be banished tomorrow—is complaining the SEC didn’t go far enough. Many practical business leaders are looking for stable middle ground. But the middle ground has become a tar pit in Washington.

Meanwhile, one group clearly benefits from the SEC rule: business service companies hoping to help others calculate their carbon emissions. Yesterday, Boston Consulting Group and SAP announced a new partnership to integrate BCG’s carbon tracking and measurement tool (CO2 AI) into SAP’s core business technology systems. I spoke recently with BCG CEO Christoph Schweizer, who told me sustainability has become “a number one or two” topic for most of the large companies BCG serves. He added: “We want to make a positive difference in the world. The generation of people we attract into BCG, they want to work on climate and sustainability. It’s an incredibly important tool for attracting talent.”

More news below.

Alan Murray


Russian nukes

Kremlin spokesman Dmitry Peskov horrified some when he told CNN's Christiane Amanpour yesterday that Russia could use nuclear weapons if facing "an existential threat for our country." The Pentagon called his words irresponsible—though as Peskov explicitly said in the interview, this is longstanding Russian nuclear doctrine, not something new. France24

Evergrande seizure

More bad news for Chinese developer giant Evergrande, which just saw banks seize over $2 billion held by one of its subsidiaries. Evergrande still wants its foreign creditors to hang around; a restructuring plan is promised by July. Wall Street Journal

Crypto ads

The U.K. is cracking down on misleading cryptocurrency ads. Fifty companies—including the likes of Coinbase and—got "red alert" letters from the Advertising Standards Authority yesterday, warning them to check the compliance of their promotional materials. Banned practices include fueling FOMO and suggesting that investment decisions are easy. Fortune

Musk's donations

What has actually happened to the $5.7 billion that Elon Musk claims to have donated to charity? No nonprofits have actually reported receiving funds from the Tesla and SpaceX boss, and some speculate he might have shifted the cash into intermedial investment vehicles where it could stay parked for quite some time, despite being earmarked for charity. Fortune


Inflation management

Fortune's Geoff Colvin and author Ram Charan have a must-read piece on how to manage in a time of high inflation: "Leaders who skillfully manage through today’s economic volatility will almost certainly report fatter profit margins and far outpace competitors for years to come." Fortune

India and Russia

Yale's Anjani Jain has penned a Fortune piece explaining why India has such a nebulous policy on Russia's invasion of Ukraine: "The Indian media's lack of interest in what happens beyond its borders isn't unique. But it means that Indians can't see the failure of their foreign policy regarding Ukraine." Fortune

India and Novavax

India has become the first country to approve Novavax's protein-based COVID vaccine for teenagers. (Bonus read: A new study in Hong Kong suggests Sinovac's inactivated jab may provide as much protection against death as BioNTech's mRNA vaccine does.) Fortune

European gas

European countries should jointly procure natural gas rather than striking bilateral deals, Belgian Prime Minister Alexander De Croo said as the EU continues to debate how best to wean itself off Russian fossil fuels. Financial Times

This edition of CEO Daily was edited by David Meyer.

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