This is Holly Ojalvo filling in for Peter Vanham, who is on leave but has of course been closely following the new and highly anticipated U.S. Securities and Exchange Commission ruling on climate disclosures, requiring many companies to disclose greenhouse gas emissions and climate change-related risk, including in their annual reports.
The ruling was watered down considerably from the original proposal and is as notable for what it contains as for what it leaves out: So-called Scope 3 emissions, which are created indirectly along the value chain and can make up a significant proportion of a company’s carbon footprint, were omitted from the final version. So was a direct emissions disclosure requirement for all public corporations.
Even so, no sooner was the ruling issued than the legal challenges began. Much of the blowback from state attorneys general as well as lawmakers is along political party lines, coming from Republican quarters.
How are business leaders reacting? Here’s a sampling.
KPMG U.S. ESG leader Rob Fisher:
“Regardless of whether it marks a watershed moment or a watered-down rule, companies are now facing a wave of global requirements. Amidst these disclosure requirements, the organizations that view new reporting requirements as an integral part of their broader strategy will find themselves in a better position to realize the full value sustainability initiatives can bring to their business.
“Scope 3 may be out of the SEC’s climate rule but it’s very much in scope for U.S. multinationals and likely many private companies. The SEC’s rule followed actions of the EU, California and the ISSB, all of which require Scope 3 reporting. Regulatory relief in one jurisdiction does not alter the burden imposed in others.”
KPMG U.S. ESG audit leader Maura Hodge:
“The alphabet soup of voluntary climate and sustainability reporting frameworks of several years ago has become the patchwork quilt of climate and sustainability reporting requirements of today. Companies have real work to do to understand their various reporting mandates, while navigating dual challenges of continued policy uncertainty and heightened compliance risks.
“Organizations complying with the E.U.’s CSRD requirements might be doing 75% of the work to comply with the SEC. This overlap raises the question of equivalence and whether jurisdictions can recognize other rules, reducing the burden on companies.”
Alyssa Rade, chief sustainability officer at supply-chain decarbonization platform Sustain.Life:
“Companies shouldn’t be lulled into a false sense of security. Existing regulations in California and the EU and resulting pressure from investors and consumers make the SEC’s decision to exclude Scope 3 from their emissions mandate an irrelevant caveat for most global corporations. We’re already witnessing a mad scramble for disclosure data. Companies of all sizes—irrespective of their geographic location—need to understand that climate disclosures will be the norm within the next decade.”
Neil D’Souza, founder and CEO of Makersite, a pioneer in sustainable product design that reduces carbon emissions:
“The SEC walking back environmental reporting requirements, especially scope 3, while disappointing, will not have a big impact on these initiatives at listed companies. Priorities to create the needed reporting infrastructure are still going ahead across the board. Why? Because the opposition fears litigation if false/incomplete/misleading information were to be submitted to the SEC. It’s not really the ‘burden of reporting’ as commonly claimed. Besides, any U.S. company looking to do business in California or the EU will have to report on this data in any case and many of these companies have already made public reduction target claims.
“Transparency around carbon emissions is a complex but necessary undertaking, yet many organizations are waiting for mandates before they get their house in order. It’s most often because they have not yet unlocked any business value beyond ‘reporting compliance.’ Creating better, more differentiated products that are priced better, have better win rates, improve brand performance, mitigate supply risks and reduce costs from efficiency measures are all much more powerful value propositions that are unlocked through the process. It just takes time and effort to get there and technology like AI can help solve many of the challenges in tracking, reporting, assurance and dissemination.”
Cambria Allen Ratzlaff, chief responsible investment ecosystems officer for the Americas and APAC at the Principles for Responsible Investment (and formerly of the SEC):
“The SEC’s anticipated final rule is a step in the right direction for investors in the U.S. capital markets. Providing investors consistent, comparable, and reliable disclosures from companies is key for investors who must navigate current and emerging risks and opportunities within their portfolios.
“There is extensive appetite from investors for critical information about their exposure to climate risk factors – and the only way this information can be provided in a consistent and decision-useful way is via a robust disclosure framework. As such, we hope to see the SEC continue to build on this rule after initial implementation. We look forward to engaging with regulators and policymakers in the future to discuss how investors can access the information they need to deliver long-term, risk-adjusted returns on behalf of their beneficiaries and clients.”
More news below.
Holly Ojalvo
Managing Editor, Fortune
ON OUR RADAR
Four major U.S. banks leave ESG project finance group (Reuters)
JPMorgan, Citi, Bank of America, and Wells Fargo have apparently all dropped off as signatories to a voluntary set of financial industry ESG benchmarks, Reuters reports. The Equator Principles were set up in 2003 to ensure that any major development and construction projects in finance take into account impacts on nature and communities. Spokespeople for the four banks all told Reuters that the 10 Equator Principles would continue to inform their work, but climate advocates find the move concerning, according to reporting by the Guardian. The Equator Principles website maintains a list of current and past signatories to the standards.
BlackRock swaps environmental investing for ‘transition investing’ (Yahoo Finance)
Impact Report has noted previously that the politically charged term ESG is, in many ways, dead. In what can be viewed as another nail in the coffin, BlackRock has rebranded its environmental investing as “transition investing.” Tariq Fancy, former chief investment officer of sustainable investing at BlackRock, told Yahoo Finance that political headwinds “just expedited a process that was probably going to happen anyway.” On its website, BlackRock defines transition investing as “investing with a focus on preparing for, being aligned to, benefitting from and/or contributing to the transition to a low-carbon economy.”