WASHINGTON -- A closely watched rule from the Securities and Exchange Commission that would require public companies to say much more to shareholders about how their operations affect the climate has generated more public comment than many recent regulations from the agency, attorneys and industry experts say.
The SEC is expected to issue a final rule in the spring following a draft last summer that drew nearly 15,000 comments, according to SEC Chairman Gary Gensler. The rule would make the U.S. the latest government, after the European Union, to regulate what companies must report on their greenhouse gas emissions and energy consumption. Companies could have to report on the cost of climate change for their business above a certain threshold.
“Anecdotally, I’ve never seen this number of comments come back on anything proposed by the SEC,” said Steve Soter, vice president at Workiva, a software company that helps companies with regulatory and financial reporting.
Four in 10 executives say their companies are not ready to comply with the rule, according to a recent survey by Workiva and accounting firm PWC of 500 executives at U.S.-based public companies with at least $500 million in annual revenue.
At a conference in Arizona last month that organizers said drew more than 1,600 leaders of green businesses, a panel exploring how companies would need to prepare for the SEC's rule was standing room only.
Many of the comments submitted in response to the SEC's draft objected to what companies would have to disclose about their indirect effects on the climate — such as the emissions released by their suppliers — and whether their climate-related risks are material to investors.
Auditing firms, trade groups, companies and conservative lawmakers have said those requirements would be too burdensome. Others who in their comments did not oppose reporting on those indirect effects have said they would need more time to collect such information.
Jill Fisch, a securities law scholar and University of Pennsylvania law professor, said the rule will likely face legal challenges no matter how accommodating the nation's top financial regulator is to the feedback.
Fisch said the proposed SEC rule has been caught up in the currents of the political fight in the U.S. over sustainable or ESG investing. ESG investors consider a company's environmental, social and corporate governance measures when deciding whether to invest in it. Conservatives have derided it as a tool for furthering liberal political goals.
“I wouldn’t call it unique,” Fisch said of the comments generated in response to the commission's climate rule.
Steven Rothstein, managing director at the nonprofit CERES, which works with business to promote sustainability, said analyses by his organization and others found most comments on the SEC's draft rule were supportive — reflecting what he said is a desire from institutional investors for climate-related information.
“Investors are saying ... climate is really market risks,” Rothstein said.
Rothstein said he expects the SEC to ease some parts of the rule in response to what investors, trade groups, companies and others have said about it.
“We would assume the final rule would not be as inclusive as the draft,” Rothstein said. “And that’s exactly what you’d want in a regulatory agency ... to think about what people are saying.”
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