Congresswoman Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee and Senator Elizabeth Warren (D-MA), Chair of the Senate Banking Subcommittee on Economic Policy, led 36 lawmakers in a letter to the Securities and Exchange Commission (SEC) urging the SEC to remain focused on the risk that climate change poses to investors. Among other calls to action, the letter urges the Commission to enforce its existing climate risk guidance and rules while its final climate risk disclosure rule is stayed, use every resource available to combat the legal challenges the rule is facing, and robustly implement the rule once the stay is lifted.
The lawmakers are asking the SEC to firmly state that it will ensure previous climate-related rules and guidance, including its 2010 guidance, are thoroughly enforced. The lawmakers are also asking the SEC to remind issuers that U.S. companies that are subject to alternative climate-related disclosure regimes must comply with those reporting regimes, including those from California and the European Union (the “EU”), as well as those put forth by the International Sustainability Standards Board (“ISSB”).
Assuming the rule survives litigation, the lawmakers are calling on the SEC to take a number of steps to ensure robust enforcement of the rule. First, in order to limit companies’ ability to game this rule and avoid disclosures, the SEC must quickly share guidance once the rule is upheld on how to assess “materiality” and how companies must conduct and disclose materiality assessments. Second, the Commission should recognize alternative reporting regimes such as those used by the International Sustainability Standards Board (ISSB) to ensure compliance with the final rule. Third, the Commission should commit sufficient staff and resources to the implementation and enforcement of this rule. Finally, the SEC should finalize a strong Environmental, Social, and Governance (ESG) Disclosures for Investment Advisers and Investment Companies Rule, also referred to as the ESG Funds Rule, with mandatory Scope 1, 2, and 3 emissions requirements for investment funds that market themselves based on climate-related criteria. The ESG funds rule would complement the Climate Risk Disclosure Rule by providing consistent standards for ESG disclosures, giving investors information to make more informed decisions and to determine if ESG marketing statements translate into concrete measures to address ESG goals.
In addition to Congresswoman Waters and Senator Warren, nine Senators and 27 Representatives joined the letter, including:
Representatives Joyce Beatty (D-OH), Earl Blumenauer (D-OR), Jamaal Bowman (D-NY), Julia Brownley (D-CA), André Carson (D-IN), Greg Casar (D-TX), Emanuel Cleaver (D-MO), Adriano Espaillat (D-NY), Dwight Evans (D-PA), Valerie Foushee (D-NC), Sylvia Garcia (D-TX), Jared Huffman (D-CA), Jonathan Jackson (D-IL), Pramila Jayapal (D-WA), Barbara Lee (D-CA), Betty McCollum (D-MN), Kevin Mullin (D-CA), Eleanor Norton (D-DC), Ilhan Omar (D-MN), Delia Ramirez (D-IL), Jamie Raskin (D-MD), Shri Thanedar (D-MI), Bennie Thompson (D-MS), Rashida Tlaib (D-MI), Nydia Velázquez (D-NY), Bonnie Watson Coleman (D-NJ), Nikema Williams (D-GA).
Senators Cory Booker (D-NJ), Ed Markey (D-MA), Jeff Merkley (D-OR), Bernie Sanders (I-VT), Brian Schatz (D-HI), Tina Smith (D-MN), Chris Van Hollen (D-MD), Peter Welch (D-VT), Sheldon Whitehouse (D-RI).
Despite strong investor support for the proposed rule, after fierce pushback from corporate America, the final Climate Risk Disclosure rule was significantly scaled back. For example, the final rule completely removes disclosure requirements for Scope 3 emissions, which account for as much as 90% of emissions for oil and gas companies. The rule, by imposing materiality qualifiers throughout its requirements, now also allows corporate managers significant discretion to decide if they wish to disclose information like Scope 1 and 2 greenhouse gas (GHG) emissions. The lawmakers are concerned these loopholes could give companies an excuse to limit or omit entirely their climate risk disclosures.
The lawmakers requested answers on the SEC’s plan to protect investors and implement the new climate risk disclosure rule by June 18, 2024.
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