Investors Rally Behind SEC Climate Rule

Author

Tim Mohin
23 Aug

To say the SEC’s Climate Rule has gone through the wringer would be an understatement. The policy has faced fierce opposition from the start. This week, however, there has been an upswell of support in the form of “amicus briefs” (friend of the court filings) pouring into the US Eighth Circuit of Appeals, most notably from investors. 

While there were 15 consolidated briefs against the rule from business groups, Republican State Attorneys, and energy companies, there were 16 briefs in support from large state pension funds (California and New York), institutional investors, democratic state Attorneys General, environmental activists, and even some business groups.

The SEC Rule, finalized in March and currently under a self-imposed stay until court proceedings finish, was created to give investors decision-useful information on climate-related risks. The support from more than 15 institutional investors, representing over $2 trillion, should carry a lot of weight given the SEC’s claim that the rule was created due to investor demand. The institutional investor’s brief filed with the environmental non-profit CERES claims that the SEC was measured in their approach, saying, “This is exactly what Congress established the SEC to do: ensure that investors have the information they need to make informed investment and voting decisions.” 

Of the other supporting amicus briefs received from environmental non-profits and business groups, perhaps the most important was from California State Attorney Rob Bonta, who said, “Climate-related disclosures will help investors make informed decisions to protect their investments in the face of this reality.” California also has a legal battle challenging its climate law, which may be impacted by the decision in the SEC case. California was among 46 states that pledged support or opposed the rule (mostly along party lines). 

Source: Bloomberg Law

Thursday, August 15th, was the deadline for amicus briefs. Plaintiffs now have until September 17th to respond to the SEC’s written brief and supporting amicus briefs before verbal proceedings start later in the year. 

The legal deliberations in the US have not stopped the international community from enacting their sustainability reporting regulations, many of which will impact US companies and require much more extensive reporting than the SEC Rule.

This puts the US at risk of becoming a rule-taker rather than a maker. Former Treasury climate adviser John Morton says the opponents have missed the point: “Companies that consider themselves satisfied if the SEC rule fails may have won the battle but they’ve lost the war, because they’re going to be disclosing in Hong Kong, Tokyo, the EU, Britain and California soon. What exactly have they accomplished? Now they’ll just have to disclose 15 different ways in other jurisdictions.”

Light At The End of The Tunnel For ESG 

Talk of ESG’s demise may have been premature. Despite mentions in earnings calls and marketing materials plummeting in recent years, discussion of ESG and sustainability in financial reports has remained steady. In essence, companies are doing ESG. They are just not talking about it publicly as much.

Undoubtedly, the ESG pushback has led to investors leaving climate action groups, like Climate Action 100+. And some companies are stepping back on pledges due to attacks by social media influencers. However, as Andrew Winston writes in his piece, “The ‘sustainability recession’ will end soon—and not by choice.” Sustainability, ESG, or whatever it might be called, will be back with a vengeance, not because businesses want to do good but because sustainability is a good business decision. 

As the dust settles on the ESG backlash, green-hushing, and social media attacks, some of the best thinkers in this area are sharing insights into where we will go next. In this piece, Ken Pucker, gives some simple steps companies can take instead of backtracking on pledges. In this viral article from Robert Eccles, “Moving Beyond ESG,” he suggests the way forward is to have a clearer definition of what makes a “responsible business.” He explains his three strategies for ensuring businesses are responsible: having a clear purpose, being candid in reporting, and being constructive in stakeholder and shareholder engagements.

Anti-ESG Efforts Losing Steam?

Plus, evidence continues to mount on the staggering cost states incur with anti-ESG policies: This week, new research found that pension funds in pro-ESG states outperformed anti-ESG state funds by $159 billion. 

Mandatory Climate Disclosure Down Under

Image by Micheal on Unsplash

The Australian Senate passed a mandatory climate disclosure law for medium and large companies this week.  The policy requires publicly traded companies and large private firms to publish climate risks and opportunities, their Scope 1, 2, and 3 emissions, and their mitigation plans.  The Australian policy relies on the climate disclosure standard issued by the International Sustainability Standard Board (ISSB).

Large companies (500+ employees, $500M+ revenue, $1B+ assets) and asset owners with $5B+ in assets will be required to share their first report on Jan 1st, 2025. Medium-sized companies (250+ employees, $200M+ revenue, $500M+ assets) 2 years later, followed by small companies (100+ employees, $50M+ revenue, $25M+ assets) a year after that.

The Australian standard setter will release finalized climate reporting and assurance standards before the end of the year.  Australia Treasurer Jim Chalmers said: “These critical reforms provide investors and companies the clarity and certainty they need to support the net zero transformation and further strengthen Australia’s reputation as an attractive destination for international capital.”

GHG at the DNC

Erin Schaff/The New York Times

It’s likely that Harris already has the climate voters shored up, considering the gulf in climate policy between the two parties. A coalition of climate groups announced a $55 million ad campaign for Harris. 

Stakes High In Local Elections

Image by National Geographic

It’s not just on the national level that climate stakes are high. Local elections will determine how quickly states decarbonize and adopt clean energy. In some states, where polling is razor thin, candidates for Congress, State Legislatures, Mayors, and Governors could not be further apart on climate policy. Candidates in key battleground states, like Wisconsin, have wildly differing views on climate policy. 

Congressional elections will be crucial. The president can only do so much to bend the emissions curve without a House and a Senate that can champion climate policy like the Inflation Reduction Act, which is unleashing billions of dollars in clean energy investment.

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer. 

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