Mar 24, 2022 - Energy & Environment

Why the climate disclosure fight is so intense

Illustration: Sarah Grillo/Axios

The SEC's climate disclosure mandates are shaping up as a big global warming policy fight, and some of the reasons go beyond what the rule directly requires.

Why it matters: Support for the SEC's new draft plan and the pushback is the latest flare-up in a wider battle over the role of financial regulators in fighting climate change.

Catch up fast: The SEC proposal Monday would force detailed corporate filings on carbon emissions, climate-related business risks, plans for meeting CO2 targets and more.

  • It's aimed at giving shareholders and other stakeholders clarity on what's often a muddy picture of business risks.
  • Sunrise Project senior strategist Kathleen Brophy, in a statement, called them "an important step in safeguarding U.S. financial markets and protecting investors."
  • But several GOP lawmakers and industry groups said they're overly prescriptive, costly and could require nonmaterial disclosures.

The intrigue: There's a lot more happening. Opponents fear a bank-shot effort to undercut fossil fuel development.

  • "Although styled as a disclosure rule, the goal of this proposal — as with other climate disclosure efforts — is to direct capital to favored businesses and to advance favored political and social goals," said Hester Peirce, the SEC's lone Republican, in her opposing statement.
  • However, SEC chair Gary Gensler told reporters the proposal's purpose is clear — and limited. "This is a disclosure rule. That's what the SEC's remit is. We're not a merit regulator," he said Monday.

Yes, but: It's under development as environmental groups want regulators including the Treasury Department and the Federal Reserve to do more on climate — and not only via risk analysis and disclosure.

  • For instance, Evergreen Action, in a memo last year, backed Wall Street disclosure requirements from the SEC and other regulators but added:
  • "Disclosure can provide greater information and transparency on banks’ climate risks, but federal financial regulators must require entities to act on that information and address the sources of that risk, head-on."

Zoom out: The research firm ClearView Energy Partners said the SEC plan has "broad implications" for President Biden's wider climate goals."The...toolkit for accelerating a clean energy transition relies on the 'indirect financialization' of climate risk through financial regulation rather than an explicit price on carbon," they said in a note.

  • The disclosures "could influence a lot more than investors’ assessments of risk premia."
  • Other effects could include foreign governments using the data when establishing border carbon taxes, while activists could "brandish them when targeting influence campaigns and proxy battles."
  • "These dynamics could potentially accelerate emissions-intensive firms’ adoption of lower-carbon technologies."
Go deeper