Mar 22, 2022 - Energy & Environment

Climate change outpacing SEC climate efforts

Illustration of a running track resembling Earth with shapes of continents printed on the rubber
Illustration: Annelise Capossela/Axios

The SEC’s issuance of proposed climate disclosure rules comes amid a torrent of climate disasters, from floods to heat waves and wildfires.

Why it matters: Each of these events has affected companies' bottom lines. Exhibit A is PG&E, a large public utility that declared bankruptcy in 2019 due to crushing wildfire liabilities. Your investments could be Exhibit B, such as coastal real estate wiped out from sea level rise and more powerful storms.

Driving the news: The SEC voted Monday to issue draft rules that would force public companies representing huge swaths of the economy to disclose their exposure to climate risks, as well provide information about their greenhouse gas emissions and "transition planning" for a warmer, less fossil-fuel-intensive future.

Threat level: Congress was first warned about climate change in a way that broke through nationally in 1988.

  • It's now 2022, and the U.S. still has not enacted rules to help investors figure out how a company they own stock in is incorporating climate change-related risks into its planning.
  • This puts investors, and the financial system writ large, in a more vulnerable position.

Between the lines: The rules, if implemented, would be the first mandatory disclosure requirements affecting public companies within the U.S.

The proposal signifies a growing recognition that climate change is a matter for all public firms to consider, not just ones with lofty Environmental, Social and Governance (ESG) targets.

Zoom in: Other countries are ahead of the U.S. on this, with various disclosure frameworks in place for companies in Europe.

  • The SEC itself has been proceeding cautiously, providing voluntary climate change-related guidance to companies for more than a decade.
  • Set against the backdrop of the accelerating pace and scale of climate change, the stakes of which have been driven home by a series of gripping U.N. IPCC reports published this year — the U.S. government appears to be moving more slowly than the speed at which many glaciers are melting.

What they're saying: "It's very late in the game, climate risks and actual climate impacts are proliferating, and investors are still mostly in the dark when it comes to companies' strategic, governance and operational approaches to climate and the energy transition," Daniel Firger of Great Circle Capital Advisors, told Axios via email.

  • "Better late than never, though."

The big picture: Even what may seem like far-reaching elements of the proposal, such as having some companies account for the emissions in their entire value chain (so-called "Scope 3 emissions"), are coming extremely late in the game.

State of play: The world has already seen about 1.1°C of global warming since the preindustrial era, with the Paris Agreement guardrail of 1.5°C likely to be breached for the first time between 2030 to 2035 if current emissions rates continue.

  • Yet as the U.N. Secretary-General warned in a speech on Monday, the world is not moving fast enough to cut emissions. This is the case with corporations just as it is with countries.
  • While the SEC rules are about disclosure, not making emissions cuts, they would make investors more aware of the climate risks that lurk in their portfolio.
  • And once more information is known to the public and to regulators, activists could apply more pressure to some firms.
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