Feb 24, 2024 - Business

What an SEC rule change says about the climate fight

an illustration of a smokestack surrounded by colorful rectangles and cutouts of money

Illustration: Tiffany Herring/Axios

The Securities and Exchange Commission is said to be scrapping plans to require that public companies disclose carbon emissions from their supply chains and end users as part of its long-awaited disclosure rules.

Why it matters: Scope 3 emissions, as they're called, are often the largest source of carbon emissions for companies, and especially in the fossil fuel industry.

  • The regulator's potential move is part of a broader retreat — or at least rethink — within the financial and corporate sector on environmental and social issues. Politics is playing a major role in the backlash.

Catch up quick: As part of a revised version of its proposed disclosure rules, the SEC has reportedly removed the requirement from the initial rules it proposed in March 2022, according to Reuters.

  • It's unclear whether it's modified its draft rules for Scope 1 and 2 emissions (emissions generated from a company's operations, and emissions related to its energy consumption, respectively).
  • The commission received what seems like hundreds of comment letters. Officials held dozens of meetings with members of Congress, lobbyists, companies, asset managers, climate groups, and individuals.
  • Last fall, it hinted to lobbyists that it was headed in this direction.

Zooming out: The U.S. is playing catch-up to other jurisdictions, notably Europe and the U.K., where rules for requiring disclosures are further along and investors have been more aggressively pushing companies on their policies and operations.

  • But the U.S. has a different legal and regulatory environment, and a different business culture when it comes to climate change.

Inside the room: The SEC — and chair Gary Gensler — are ambitious in their quest to make significant changes to climate disclosures, but that may not be enough to make those regulations stick.

  • The agency is already under fire for some of its other regulatory changes.

Although Washington's climate-related actions get the bulk of attention, states have been quite active as well.

State of play: Just this week, New Hampshire's Senate rejected a bill that would have restricted ESG investing of tax dollars. Separately, Oklahoma Treasurer Todd Russ called on BlackRock, State Street and JP Morgan to drop out of three pro-climate coalitions.

  • New Hampshire: The state Senate rejected a bill that would make it a felony, punishable by up to 20 years in prison, for any fiduciary to knowingly use ESG criteria in investing taxpayer dollars. Its sister bill in the state House was also rejected by the Executive Departments and Administration Committee this month.
  • Oklahoma: The state treasurer this week urged asset managers to ditch the Glasgow Financial Alliance for Net Zero, the Net Zero Asset Managers Initiative and the Net-Zero Banking Alliance, claiming they're harming Oklahoma's economy.

Friction point: More than 60 such bills pending in state legislatures take aim at ESG investing factors, according to a Reuters analysis of data from law firm Ropes & Gray.

The big picture: The SEC's reported action, along with moves at the state and local level, are the latest in what feels like a larger pullback in the quest to push companies to disclose and curb their carbon footprint.

  • Over the past week, top financial asset managers pulled out of Climate Action 100+, often citing the group's next phase of action, which will entail pressuring portfolio companies to enact policies to curb their emissions.
  • But political pressure — and litigation concerns — are certainly playing a big role in investment firms' retreat.
  • Last month, ExxonMobil sued activist investor Arjuna Capital and climate group Follow This to thwart a proposed shareholder resolution that calls on the oil company to set more aggressive emission-cutting goals.

What we're watching: The final version of the SEC's proposed rules on emissions disclosures, and how the commission votes.

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