Proposed SEC rules bring the climate fight to Wall Street

·Senior Editor
·6 min read

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What’s happening

American companies will be obligated to publicly disclose the amount of greenhouse gases they produce and the risks that climate change poses to their business, under new rules proposed by the Securities and Exchange Commission last week.

As part of its role as the nation’s financial market regulator, the SEC already requires public companies to publish a broad range of information so investors can make informed decisions. With these new rules, the agency’s leadership is making the case that investors can’t make informed decisions without knowing how businesses plan to manage the disruptions climate change will bring.

“Climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions,” SEC chair Gary Gensler said in a statement after the proposal was passed.

On top of data about the amount of carbon they pump into the atmosphere, public companies would also have to provide detailed information on how climate impacts might disrupt their business, including the costs of transitioning from fossil fuels and the specific danger that things like heavy storms and sea level rise pose to their physical infrastructure. Certain companies would also be required to account for carbon emissions that come from customers using their products. Oil companies, for example, would have to report the emissions from cars and trucks burning their fuel, rather than just the carbon used to extract and refine it.

Why there’s debate

SEC leadership has specifically avoided making the case that these rules are intended to compel companies to cut their climate emissions. Its argument in favor of climate disclosures is entirely based on giving investors the information to make sound decisions. It is true that many high-profile investment firms have been asking for this kind of information, and many major companies — including Apple and Amazon — already share it.

But the larger debate about the rules, among people outside the financial sector, has mostly centered on how they might affect the level of climate emissions companies produce. Many environmentalists have celebrated the SEC’s move. They argue that making companies quantify both how they are contributing to climate change and how they will be affected by it will force them to come up with substantive plans to decarbonize, instead of allowing them to rely on vague “greenwashing” pledges.

Not surprisingly, some of the companies that would shoulder the biggest burden — like the fossil fuel industry — oppose the potential rule changes, arguing that they would stifle economic growth. Many conservatives have also accused the SEC of trying to impose liberals' green agenda on the financial industry, a move they say is wildly outside the scope of its authority.

What’s next

The SEC has initiated a 60-day public comment period before it will consider finalizing the rules later this year. If enacted, most observers expect the rules to face an immediate legal challenge that could ultimately make its way to the Supreme Court.



No serious plan to fight climate change can ignore financial markets

“Despite past failures, financial markets are an important lever for climate action as the magnitude of economic risk from a warming world becomes apparent. … Financial markets have the power to price climate risk into global markets and compel companies to act more responsively to climate risk and opportunities.” — Danielle Fugere, Sierra Club

The rules would put legal weight behind companies’ promises to go green

“One of the flukes of U.S. law is that while it’s legal to lie to the public, it’s illegal to lie to investors. … The SEC is now saying that when a company publishes a net-zero plan, it is making a material statement about the future of its business, and it must be as careful to tell the truth in that statement as it would be when discussing its profits and losses.” — Robinson Meyer, Atlantic

Investors of all stripes deserve to know how climate might affect their investments

“If you are putting a company’s stock in your retirement plan or your kid’s college fund, it is logical to try to understand the risks that a company faces and the impact those risks may have on your long-term value. As you make those decisions, wouldn’t you want to know about the risks posed by climate change, its expected impact on the company’s strategy and profit, and how it plans to adapt?” — Sarah Keohane Williamson, Forbes

The financial sector can’t maintain stability without true knowledge of climate risks

“Billions of dollars of commitments have been made by corporations to reduce carbon emissions. But without reliable and comparable corporate disclosures, investors will be unable to make informed judgments about the consequences for the value of their investments.” — Joseph Stiglitz and Peter R. Fisher, USA Today

The rules will make it clear which businesses are serious about their pledges to reduce their emissions

“Beyond the outcome, the fight—pitting one group of corporate actors against another—is also likely to be instructive, illustrating the emerging fault line between companies that are engineering their firms to survive a climate-changed world and those that are hanging on to an old way of doing things.” — Justin Worland, Time

The SEC’s rules are climate activism dressed up as market regulation

“This is not an honest attempt to protect investors; it is climate activism in finance-regulation drag. The goal is to force firms to disclose information about greenhouse gases and carbon intensity on the assumption that future investors will penalize them because of it.” — Richard Morrison, National Review

Companies will find ways to satisfy the rules without taking meaningful climate action

“It just feels like the industry that these rules will create, the industry of optimizing this reporting, will be an industry of optimizing this reporting, which is not quite the same thing as an industry of reducing greenhouse gas emissions.” — Matt Levine, Bloomberg

Climate mandates are a job for Congress, not the SEC

“The SEC’s congressional mandates do not include regulating the climate. … If Congress wants the SEC to join (or displace) the EPA as a primary climate regulator, Congress can say so.” — C. Boyden Gray, Washington Post

The free market would be much more effective than arcane government rules

“Even if we consider climate-impact metrics to be important, what markets need to flourish is a dynamic, iterative information-discovery process that rewards accuracy rather than formal compliance. No government regulatory regime can provide that; only competing voluntary frameworks attempting to prove their value can generate such results. The SEC’s proposal would short-circuit that evolutionary process permanently.” — Richard Morrison, National Review

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