Nearly two years after the release of the draft regulations, the Securities and Exchange Commission (SEC) has finally issued its final climate disclosure rules. Last year, I convened a group of faculty from Columbia University's Sustainability Management master's program to design a new set of courses to address upcoming changes. This year, we have offered his three new courses on this subject, in addition to our existing courses on Corporate Sustainability Reporting, Greenhouse Gas Measurement, and Life Cycle Assessment. This fall, it was held panel discussion The issue also focused on environmental reporting obligations in California and the European Union. early this year I wrote about the importance of the SEC's climate disclosure regulations. Although this new regulation is controversial, it is also an important step in the development of the field of sustainability management.
The SEC was facing a political deadline due to the uncertainty posed by the 2024 presidential and congressional elections. They really had no choice and finally took action last week.by SEC website:
“The Securities and Exchange Commission today (March 6, 2024) adopted rules to enhance and standardize climate-related disclosures for public companies and public offerings. Responding to investor demands for more consistent, comparable and reliable information about how those risks are managed while balancing financial impact with concerns about mitigating associated costs. The rules reflect the Commission's efforts to respond to the rules. „Our federal securities laws provide for basic trading. As long as we make what President Belt calls „full and truthful disclosure,'' we can decide what risks to take,'' SEC Chairman Gary Gensler said. “Over the past 90 years, the SEC has updated the disclosure requirements underlying its fundamental transactions from time to time and provided guidance regarding those disclosure requirements as needed.” Chairman Gensler continued, “These final The rule builds on past requirements by requiring disclosure of material climate risks in public companies and public offerings. The rule provides investors with consistent and comparable decision-useful information. It would provide issuers with clear reporting requirements. It would also specify what companies must disclose, creating more useful information than what investors currently see. Climate risk disclosures are also required to be included in SEC filings, such as annual reports and registration statements, rather than on a company's website, which increases credibility.”
The final rule reflected more than 24,000 comments and intense debate about what is reasonable and necessary. Environmentalists were frustrated by the omission of reporting on scope 3 emissions, or emissions from an organization's supply chain. There were other changes to the proposal, with The New York Times and other media headlines announcing the release of „weakened“ or watered-down rules. I sincerely hope that these journalists will leave their opinions to the editors and refrain from publishing such evaluations in news articles. Indeed, environmentalists will not continue their work unless they comment that the government is not doing enough to protect the environment. As expected, these „news reports“ cited interest groups that believed the rules were not strict enough or questioned the need for the SEC's action in the first place. A „balanced“ story needed to present the opinions of those who thought the rules were too weak or too strong. However, no one thought the new rules were reasonable or appropriate. The carbon disclosure rule is opposed by at least 10 states, led by West Virginia Attorney General Patrick Morrissey. Many environmental activists believe the rule does not require companies to fully disclose their climate impacts, and a New York Times report focused on the differences between the original draft proposal and the final rule. Ta. One new york times The article's headline reads, „SEC approves new climate change rules that are far weaker than originally proposed…Rules aimed at informing investors of business risks posed by climate change are a sign that Republicans, fossil fuel producers, farmers and others It was withdrawn due to opposition.“another times The article's headline was „How climate change rules have been watered down.“
There is a strategic logic to rule-making such as budgeting, and I'm sure reporters understand it, but they choose to ignore it. When agencies propose budgets, they know that their requests will be cut, and they will certainly never get more than they ask for. Their initial request therefore leaves room for cuts that can be easily absorbed. Similarly, In the regulatory process, proposed regulations are almost always more stringent than final regulations. Regulators know to leave everything on the table, so they can waive some provisions and still have enforceable rules. Then, as new regulations come into effect, revisions based on operational experience and new scientific findings tend to make them more stringent. The goal of any new regulation is to get hands-on, establish the legitimacy of the rules, and work on improvements over time.of Associated Press About this article, a not-so-leaning headline says: „SEC approves rule requiring some companies to report greenhouse gas emissions. Legal challenges loom. Perhaps Times reporters and headline writers should put aside their biases and do the AP-style Maybe we can pursue objectivity.
In my view, the SEC rules are the first step in codifying the measurement of public companies' environmental impact. In a more populated and environmentally stressed planet, investors need to be aware of the environmental risks posed by their investments. Climate is just one of the environmental risks. Biodiversity, infectious diseases, toxic substances, and other forms of environmental damage that may be caused by the company or caused by others, but that affect the company's functioning, can also pose problems. finance Risks to investors. The SEC's actions last week mark a watershed moment in the legalization of sustainability metrics. This is an important step in learning how to manage economic growth without destroying the planet.
In addition to the comparison with March 6th,th Comparing the SEC rules and the proposed rules, New York Times reporters may have compared the rules to the situation on March 5th, 2024, when there were no rules. Until March 6, all companies raising capital on the U.S. public markets could publish any environmental information they wanted to make public. This was the state of financial data leading up to the stock market crash of 1929. At that time, companies reported all the financial information they wanted to make public. The lack of reliable information has turned the stock market into a casino. This ended with his New Deal party establishing his SEC in the 1930s. The SEC defined financial reporting, which led to the development of the profession of financial accounting and the job of the chief financial officer (CFO). The SEC's rules regarding corporate reporting have evolved since the 1930s. My hope is that the actions taken by the SEC last week will create the field of environmental accounting and accelerate the development of sustainability metrics. The rulemaking process identified practical issues with the proposed rule, resulting in a more modest but defensible final rule. Measuring greenhouse gas emissions is complex, certainly more so than measuring income and expenditure. Corporate reporting to the SEC now includes disclosure of potential board conflicts of interest and other rules to reduce the potential for self-dealing and fraud. Assuming carbon regulations survive a conservative court system and future appeals, they will refine these measures and ensure that operations are based on measures that provide the most cost-effective pollution reductions possible. Our ability to make top decisions will be accelerated. Removing Scope 3 emissions from the rules was in part a response to the difficulty of measuring greenhouse gases emitted by one organization that another organization does not control. However, if all organizations within the supply chain are eventually required to report Scope 1 and 2 emissions, this will ultimately result in more accurate estimates of emissions within the supply chain. . Because supply chains are global and SEC rules are limited to the United States, it may take a long time to be able to accurately measure Scope 3 emissions. But importantly, government regulation of corporate environmental reporting has finally begun.
The views and opinions expressed herein are those of the authors and do not necessarily reflect the official position of Columbia Climate School, Earth Institute, or Columbia University.