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US SEC’s climate disclosures needed to protect investors, says expert panel

By Victor Smart

Panel of experts rebuffs criticism of US Securities and Exchange Commission’s climate disclosure proposals, siding with chair Gary Gensler on their relevance to investor protection.

The US Securities and Exchange Commission has sought to buttress its case for proposals to impose mandatory climate-related disclosures on companies — which some view as controversial — with a panel of expert testimony that reported investors’ support for the initiative during an open meeting of the SEC’s Investor Advisory Committee.

At the meeting, on Thursday, SEC chair Gary Gensler said the commission’s strategy on climate change showed continuity with the past. “Over the generations, the SEC has stepped in whenever there has been a significant need for the disclosure of information relevant to investors’ decisions… We did that in 1960s when we added disclosure about risk factors. We did that in the 1970s when we first added environmental-related disclosures, which the commission has elaborated upon over the decades.” 

He added that hundreds of issuers are now disclosing climate-related information, and investors representing tens of trillions of dollars are making decisions based on that information. Companies, however, are disclosing “different information, in different places, and at different times”. 

The SEC first unveiled the proposed disclosure requirements on listed companies back in March. With the issue now highly politicised, the agency recently extended the consultation period on the rule changes until June 17. 

In April, 40 Republican congressman and 19 Republican senators wrote open letters criticising the proposals because outside of the commission’s authority. They also face opposition from within the SEC’s own board, with commissioner Hester Peirce expressing similar concerns. 

But at the IAC meeting, panellist Cynthia Williams, chair in business law at York University, countered: “Why has the SEC proposed this disclosure? It’s because investors have been clamouring for it.” She said investors with $130tn in assets have requested that companies disclose their climate risk using voluntary schemes such as that operated by the not-for-profit CDP. But these voluntary systems were not proving up to the task. “What data is being presented and disclosed lacks some of the reliability, consistent presentation and comparability that investors say to the SEC they need. That’s the major reason that the SEC has acted,” she said.

The investment industry in multiple surveys has indicated their views that climate risk “is not being incorporated into prices”, she added. 

Another panellist Samantha Ross, founder of AssuranceMark, an investor-aligned group, said: “Being voluntary, being unregulated, being unaudited, being unmonitored, [the voluntary system] is all over the place. And that’s what investors are really struggling with – that it is just not serving their purpose.” Investors face inefficiencies and costs in gathering data, gaps in data, and a lack of information that is consistent and comparable.

Ross went on to say that investors “really do support the global harmonisation of disclosures”. Separately, the expert panel warned that the US was behind the UK and EU on disclosure policy. This, it was claimed, meant capital might flee America for Europe. One expert did acknowledge, however, that there was a risk that publicly listed companies might be acquired by private equity, and thereby avoid the requirement. 

The most contentious aspect of the SEC proposals is its requirements on so called Scope 3 greenhouse gas emissions. These are emissions made not by a company itself but indirectly by users of a company’s products, for example. This captures the wider emissions resulting from the operation of the oil sector in particular, where those burning the fuel account for 90 per cent of overall emissions. But critics argue that the Scope 3 emissions are too sprawling and ill-defined to be calculated with any certitude and the SEC should not mandate them until there is more standardisation. 

The SEC has said the Scope 3 requirement would include exemptions based on a company’s size, and that all the emissions disclosures would be phased in between 2023 and 2026.


A service from the Financial Times