SEC weighs scaling back climate rule as lawsuits loom

As reported a few days ago, in United States (US) a group of politicians from several States stepped up their criticism of firms that incorporate environmental, social, governance (ESG) goals into their business, arguing that the companies should focus more on investment returns.

With arguments such as "it’s unconstitutional" or "ESG politicizes business" or "leads to lower returns on investments", and that "business is there for profits and shareholders, and nothing else", - and in a country where retirement is linked to the culture of dividends - its obvious that the pushback from companies is very strong in US.

According to a February 3 article from The Wall Street Journal (WSJ), it appears now that the Securities and Exchange Commission (SEC) plans to scale back its proposed climate-disclosure rules, and is looking again at the financial reporting aspect of the climate-disclosure plan it issued last year .

"The final version of the SEC rules, expected this year, will likely still mandate some climate disclosures in financial statements, according to the people close to the agency. But the commission is weighing making the requirements less onerous than originally proposed, the people said, such as by raising the threshold at which companies must report climate costs" says the WSJ

The SEC’s March 2022 proposal, for exemple, would require listed companies to report any climate costs that were 1% or more of each financial-statement line-item total. Including Scope 3 emissions, i.e. up and down the value chain. Easing this 1% threshold would make sense, as it would create onerous demands and relied on very speculative what-if analysis, in this "unknown frontier" of climate and extreme weather events.

Some analysts consider that including Scope 3 requirements at this first round would make the rule “more vulnerable to lawsuits”.

Under current rules, companies are generally required to disclose only those climate costs and risks they judge to be material, or significant, without that 1% trigger.

Other key information expected by SEC to be published by companies are:

- internal processes to deal with climate risk;

- how material climate risks affect its business and financial statements;

- the effect of climate risk on its strategy,

- outlook or business model ("for instance, the profitability of fossil-fuel assets")

As the article also mentions an analysis by Carbon Tracker, here is a link to that specific report "98% of big emitters’ financial statements surveyed do not sufficiently acknowledge climate risks" . It was published on October 2022, and analyised 134 multi-national companies responsible for up to 80% of corporate industrial greenhouse gas emissions. Click at the image below (Carbon Tracker) to read the full analysis by Politico .