SEC has ‘no excuse’ delay climate disclosure rules

In the wake of California’s groundbreaking climate disclosure legislation, Securities and Exchange Commission chair Gary Gensler has made headlines by declining to provide a definitive timeline for finalising crucial climate disclosure rules. Critics of the delay say the Securities and Exchange Commission (SEC) now has “no excuse” to enact the long-overdue regulations.

The California bill requires the largest publicly traded companies operating in the state to disclose their greenhouse gas emissions and climate risks. By focusing on scope 1 and 2 emissions, it represents a significant leap forward in corporate transparency and addresses one of the central issues that the SEC is grappling with, providing a potential model for federal regulation.

Despite this state-level action, pleas from business and Democrats alike to finalise the climate disclosure rules have been side-stepped by Gensler. This decision has raised questions about the regulatory path forward and its implications for investors, companies and global sustainability initiatives. The divergent approaches of federal and state authorities to the issue of corporate climate disclosures demonstrate the challenges that lie ahead in setting a standardised framework.

California’s proactive stance on climate disclosure could exert pressure on the SEC to finalise its rules more quickly and align its approach with state-level initiatives. This development could be seen as an indicator of the shifting dynamics in the climate disclosure landscape, with states taking the lead when federal progress is slow.

Gensler admitted the new California disclosures could “change the baseline” for the SEC’s long-overdue climate rules. However, at a recent conference, he cited the need for more time and deliberation to incorporate feedback from stakeholders and refine the proposed rules.

Anne Perrault, senior policy counsel at Public Citizen, told Green Central Banking that, given the news from California, Gensler “has no excuse not to include scope 3 reporting requirements in his woefully delayed climate risk disclosure rule”. Some argue that this hesitation may result in the SEC losing momentum in setting standards for climate disclosure, and failing to provide a clear roadmap for regulatory implementation may discourage companies from taking meaningful action and making vital disclosures.

Since the SEC began delving into climate risk disclosure rules, both the European Commission and the International Sustainability Standards Board (ISSB) have published their respectives standards that require companies to disclose scope 3 emissions when material. The European standards could impact thousands of cross-listed US companies. The UK has already adopted the ISSB standards, while Singapore has also sought to align with the reporting requirements.

The lack of federal standards in the US could lead to a fragmented approach, with each state establishing its own set of rules.

“Fundamentally, the scope 3 ship has sailed around the world,” said Perrault. “While Chair Gensler once had an opportunity to lead, his only choice now is how far [behind] he will lag. Given California’s legislation and EU regulations, it’s critical the SEC issues a strong rule that is consistent with other jurisdictions for both companies and investors in order to avoid a patchwork of regulations and reduce compliance costs.”