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Coalition, all Democrats, offer support of SEC climate-change requirements

Eighteen state attorneys general, all Democrats, on Wednesday expressed their joint support of a Securities and Exchange Commission proposal requiring U.S. companies divulge the potential financial risks of climate change on their businesses.

The SEC proposal, “Enhancement of and Standardization of Climate-Related Disclosures,” was entered into the Federal Register last April. The federally mandated rule would force companies to disclose greenhouse gas emissions. SEC commissioners approved the proposal on a 3-1 vote. Republican Commissioner Hester Peirce, the lone dissenting vote, declared the rule exceeds the SEC’s regulatory authority.

In her detailed dissenting opinion, Peirce noted portions of the proposed disclosure requirements are redundant with existing SEC rules, which she said already cover material climate risks.

“The proposal turns the disclosure regime on its head,” she wrote. “Current SEC disclosure mandates are intended to provide investors with an accurate picture of the company’s present and prospective performance through managers’ own eyes. How are they thinking about the company? What opportunities and risks do the board and managers see? What are the material determinants of the company’s financial value? The proposal, by contrast, tells corporate managers how regulators, doing the bidding of an array of non-investor stakeholders, expect them to run their companies. It identifies a set of risks and opportunities – some perhaps real, others clearly theoretical – that managers should be considering and even suggests specific ways to mitigate those risks. It forces investors to view companies through the eyes of a vocal set of stakeholders, for whom a company’s climate reputation is of equal or greater importance than a company’s financial performance.”

Peirce also asserted the SEC does not possess the authority to impose the potentially expensive rule.

“Embedding a risk-specific disclosure requirement in the financial statements erodes the important status of financial statements as objective, economically sound representations of a company’s financial situation,” she wrote. “These numbers and the assumptions that underlie them will be invaluable for stakeholder groups looking to force companies to pour more money into climate-related expenditures, but their value to investors is unclear.

The attorneys general of California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington, and Wisconsin filed the letter last Friday.

“Investors have been clear that for their decision-making they need specific, comparable disclosures about climate-related risks, as well as about registered companies’ management of those risks,” the AGs wrote. “In the absence of a mandatory disclosure regime, investors have been left to piece together climate-related information from a variety of sources that does not allow them to meaningfully compare companies. They are also vulnerable to the effects of greenwashing, which the Proposed Rule promises to address through its mandatory disclosures. In short, we believe the Proposed Rule is well-structured to deliver to investors what they need to make informed investment decisions.”

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