Last weekend, scientists were caught off guard when temperatures soared at both the north and south poles to levels that scientists described as stunning and unprecedented. On Monday, when US regulators unveiled sweeping proposals requiring public companies to disclose their exposure and contribution to climate risks, Republican critics branded the step onerous, expensive and undemocratic. These objections are short-sighted and overblown.
At a minimum, the rules proposed by the Securities and Exchange Commission would help to resolve the confusion faced by a growing number of investors seeking to determine a company’s green credentials. A lack of consistent standards for reporting greenhouse gas emissions has long made it overly difficult to compare company A’s climate efforts with company B’s. The SEC plans would resolve this by requiring companies to report their own emissions, and in some cases those from their supply chains.
If a company had set a net zero target, it would have to show how it intended to meet it. If it wanted to rely on carbon offsets, it would have to detail how much carbon might be cut. Further protection would come from the commission’s proposal to require more detail about how climate-related risks could affect a business.
It is true that this will add extra expense and complexity. Companies may collectively spend as much as $6.7bn on consultants, lawyers and other experts over the next three years, says Verdantix, a sustainability research firm. Some of these costs will be one-offs but many will be ongoing.
The extra scrutiny may encourage some publicly traded US companies to go private. But the proposed rules are hardly unique. If adopted, they would bring the US into line with countries such as the UK, where more than 1,300 large companies and financial institutions face new climate disclosure rules from next month. The EU, New Zealand and others have recognised the need for such measures, which should also push capital towards a global decarbonisation effort that some think will require $9tn a year of investment.
Critics should drop the pretence that the SEC’s plans will cause immediate problems. Aware of longstanding legal threats to its plans, the SEC proposals would be phased in gradually over a period of years. So-called “safe harbour” liability provisions have been included to protect directors from, say, a supplier that overstates its use of green electricity. The emissions of such suppliers are known as Scope 3 in the industry jargon and are often the largest — and trickiest — to measure.
Here again, the SEC has tried to ease reporting burdens. Under its proposals, many companies would only have to report Scope 3 emissions if it deemed them “material”, a provision climate activists say is too lax.
Those seeking climate action in the US are accustomed to disappointment. The SEC’s plans are an increasingly lonely piece of policy in a Biden administration whose efforts to advance climate change action have been repeatedly buffeted by political opponents.
Last week, Sarah Bloom Raskin, President Joe Biden’s pick to lead financial regulation at the Federal Reserve, withdrew her nomination after Democratic senator, Joe Manchin, joined Republicans in opposing her confirmation. Raskin’s critics took issue with her view that US regulators should do more to address the potential financial fallout from climate change.
She was right and so is the SEC. Evidence of climate extremes grows by the week, when the world has warmed by only around 1.1C. As emissions continue to rise, investors, like the planet, need all the help they can get.
