SEC Climate Rule Fallout: the Good, the Bad, and the Ugly

As the dust settles on last week’s final SEC Climate Disclosure Rule, commentary around the content of the final rule is getting increasingly pointed, and battle lines are being drawn. The implications can be split up into three main categories:

The Good

While some were disappointed that the final rule was “watered down,” 91% of investors believe the SEC’s final rule will help them make more informed investment decisions — Scoring better than California’s climate laws and even than the EU’s Corporate Sustainability Reporting Directive (CSRD).

This piece in the FT pointed out that the SEC rule simply adds to the growing number of policies requiring climate disclosure. During the two years of waiting for the SEC to finalize their rule, the rest of the world moved ahead with similar and more stringent requirements. Mark Campanale, founder of the Carbon Tracker, said, “American corporations that want to operate in Europe are going to have to abide by regulations around disclosure and reporting that they have been fiercely lobbying against in the US.”

The Bad

On the flip side, many experts think the SEC missed an opportunity by not working with other regulators and standards setters to make their rules “interoperable.” Former SEC Commissioner and one of the climate rule’s architects, Allison Herren Lee, said, “[The SEC] just ignored the need to harmonize globally, and . . . that’s a nightmare for issuers.” 

Despite the rule being weakened to reduce the cost burdens of the original proposal (estimated to cost $530,000 on average in the first year of disclosure). The new estimates of the cost of disclosure are still pretty high, ranging from less than $197,000 to over $739,000 per year over the next ten years, with an average 1st year estimated cost of $327,000, which some believe will be an issue for reporters and could deter companies from issuing an IPO.  

The Ugly

Whether the rule becomes a reality is still up in the air. While it seems certain to be delayed by litigation, which one source claimed could take up to an additional four years, the likelihood is that the Supreme Court will make the final decision on whether the rule is implemented (if it gets that far). 

Last week, we shared the 10 Republican states that have already filed a suit to block implementation of the rule. Another legal challenge from an energy company has been filed  and the Chamber of Commerce is threatening litigation against the final rule. On the other side, climate action groups are suing because the bill does not go far enough.

Opponents are likely to use First Amendment free speech arguments - alleging that the rule “compels speech” by requiring climate disclosure. Other opponents will cite the “major questions” doctrine, a legal theory adopted by the Supreme Court in West Virginia v. EPA, a landmark 2022 ruling that curbed EPA’s ability to regulate emissions from coal-fired power plants. Some lawyers claim the 24,000 comment letters received by the SEC will increase the legal challenges since most arguments have already been made.

CSDDD Goes Into Overtime 

It seems like there is another twist in the Corporate Sustainability Due Diligence Directive tale every week. This week was no different. After a weakened draft was meant to go to a final vote last Friday, that vote was again postponed. Austria, Italy, and Germany complained that the directive would be burdensome for small businesses. Italian Minister Adolfo Urso said, “It is a text that can still be improved… In particular, we think it can be improved for what concerns the requirements to which SMEs are subject,” 

Others question whether this is a smokescreen since last week’s version had exempted most small companies. One source said, “In terms of the law’s applicability, all concerns on a potential direct burden on SMEs had been fully addressed.”

EU diplomats are now attempting to “bulletproof” the text by adding safe harbors for smaller companies and will give it one more shot today - Friday, March 15th. 

Singapore to Pay Companies Make Climate Disclosures

The US and EU could learn from Singapore, which eased the climate reporting burden for their smallest companies by providing financial support. 

Singapore’s Sustainability Reporting Grant will provide companies with financial assistance for up to a third of the overall costs of their mandatory climate reports, which will begin in 2025. 

The new grants will be provided to large companies with annual revenues greater than $100 million to defray up to 30%—capped at S$150,000 (USD$112,000)—of the cost of preparing their first sustainability report. 

For small companies, the government will provide up to 70% of the costs to participate in a program to help SMEs work with carbon service providers and develop their first sustainability reports. Singapore Minister of State Low Yen Ling said, “Businesses need capabilities and resources to track and report their carbon footprint. To this end, we will provide funding support of up to 30% to large companies to kickstart their sustainability reporting journey.”

Methane Emissions Close to Record Highs in 2023

Methane is the second most common greenhouse gas and one of the most powerful, with one tonne of methane being the equivalent of 28 tons of CO₂. The IEA Global Methane Tracker 2024 report revealed that methane emissions increased in 2023 compared to 2022 and almost reached the record levels of 2019. 

The same IEA report claimed it would cost $170 billion to meet methane reduction goals and help oil and gas firms reduce leaks. Another study revealed that we could be underestimating methane emissions by a factor of three. 

Paradoxically, conservatives are challenging a recently passed Environmental Protection Agency rule to limit methane emissions, invoking the “major questions” doctrine. Michael Burger of Columbia University’s Sabin Center for Climate Change Law said, “It comes up (the “major questions” doctrine) in almost every case now… It doesn’t seem like there’s a particularly strong argument for it, but that’s not to say it won’t curry favor with some judges.”

“Unknown Territory” in Global Temperatures

Spring has sprung early in the US as we wrap up our hottest winter since records began. Last month was confirmed to be the hottest February ever, tipping the scales at 1.77°C above the pre-industrial average for the month. Global sea temperatures also hit a record 21.06°C in February, beating the previous record, which was held for only five months.

In an FT Live interview, Jim Skea, the head of the UN’s Intergovernmental Panel on Climate Change, said this year thrust the world into “unknown territory.” Even though this year's temperature was 1.5 °C above pre-industrial levels, he believes it is still a viable goal.

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

Other Notable News:

• A series of studies that showed companies that do good for the planet and society are more profitable are now beginning to be questioned for accuracy. The papers that influenced a boom in ESG investing and have helped shape sustainability regulations may have been built on shaky evidence.

• Greta Thurneberg got on the wrong side of the law again this week. Police physically removed her from blocking the Swedish Parliament, where she protested political inaction on climate change.

• The EU voted through a new law limiting fast fashion. The rules will force clothing and textile companies to pay for the collection and recycling of footwear and clothing.

• A new report from the world’s largest investor, BlackRock, reveals that falling battery prices, upcoming elections, and increasing physical climate risks are all contributing to the low-carbon transition investing mega trend. 

• UK emissions have dropped to their lowest level since 1879. The fall was due to high gas prices, renewables, and a warm winter. 

• The Biden administration released a National Zero-Emission Freight Corridor Strategy. The strategy will promote zero-emissions transport infrastructure up to 2040 and will be an important part of the US goal of reducing emissions by 50-52% by 2030.

• The EU released its first report on climate risks. The overwhelming message was to act now, or climate change will wreak catastrophic damage on Europe. It revealed, among other things, that they need to change farming and diets, protect from sea level rise, and Southern Europe will be the worst hit. 

• It can be tough to keep up with the number of countries adopting the International Sustainability Standards Board (ISSB) standards into their sustainability disclosure regulations. Thankfully, the ISSB has released this handy ISSB-aligned regulation tracker to keep us up to date.

Notable Podcasts: 

• In the most recent episode of Mike Hower’s The Sustainability Communicator podcast, Mike was joined by ESG expert Derek Young. Together, they break down last week’s release of the SEC’s final climate rule and what it might mean for sustainability communication. 

• In the most recent episode of Outrage and Optimism, the hosting team of Christiana Figueres, Tom Rivett-Carnac, and Paul Dickinson dissected the SEC’s climate rule and whether Biden can use climate action to unite a divided country. They were joined by former White House National Climate Advisor Gina McCarthy to help them unpack all of this.