The Securities and Exchange Commission is expected on Wednesday to approve new rules detailing if and how public companies should disclose climate risks and how much greenhouse gas emissions they produce, but there are fewer demands on businesses than the original proposal made about two years ago.
The rules represent a step toward requiring corporations to inform investors of both their climate emissions, as well as the business risks that they face from floods, rising temperatures and weather disasters. An earlier and more all-encompassing proposal faced outspoken Republican backlash and opposition from a range of companies and industries, including fossil fuel producers.
The main difference: Under the original proposal, large companies would have been required to disclose not just planet-warming emissions from their own operations, but also emissions produced along what’s known as a company’s “value chain” — a term that encompasses everything from the parts or services bought from other suppliers, to the way that people who use the products ultimately dispose of them. Pollution created all along this value chain could add up.
Now, that requirement is gone.
In addition, the biggest companies will have to report the emissions they directly produce, but only if the companies themselves consider the emissions “material,” or of significant importance to their bottom lines, a qualification that leaves corporations leeway. Thousands of smaller businesses are exempt, another big change from the original proposal, which would have required all publicly traded corporations to disclose their direct emissions.
Also gone from the final rules is a requirement that companies state the climate expertise of members on their board of directors.
But the directive for companies to disclose significant risks related to climate change — for example, risks to waterfront properties owned by a hotel chain from rising sea levels and storm surges — survived.
Supporters of stronger disclosure requirements said the omissions could undermine the rule altogether. “Thanks to corporate lobbying, disclosure of the very real financial risks from climate change has fallen victim to the culture wars,” said Allison Herren Lee, former acting chair and commissioner at the S.E.C., who had championed more climate-related disclosures.
Climate disasters, including extreme weather like hurricanes, floods and drought, are taking a rising toll on people and businesses around the world, disrupting supply chains and damaging crops. In 2023, the United States experienced a record 28 weather and climate disasters that cost at least $1 billion each, according to the National Oceanic and Atmospheric Administration. Treasury Secretary Janet Yellen said last year that losses tied to climate change could “cascade through the financial system.”
But Jay Clayton, who served as S.E.C. chair under Donald J. Trump, said the commission had been “arrogant” in proposing the stronger requirements, saying it hadn’t shown that the data was relevant to financial returns for investors. Instead, he said, many investors seemed to want those requirements “for political, social and other reasons.”
Some Democratic lawmakers also opposed the S.E.C.’s initial proposal, believing they would be burdensome to small farmers.
The S.E.C. first proposed the climate rules almost two years ago. Since then, it has considered more than 16,000 comments from companies, business groups and others weighing in on the potential regulation.
Many corporations argued that the regulations would be onerous and expensive, and fail to offer investors much useful information. Republican lawmakers have also been pushing back on the business world’s embrace of environmental, social and governance principles, known as E.S.G.
In recent weeks, more financial firms have walked back their own climate commitments, suggesting that the political pressure was having an effect.
Also weighing on the S.E.C. as it mulled the final rules is a Supreme Court that has shown a willingness to entertain conservative challenges to regulation and to limit agencies’ power, including authority to regulate greenhouse gas emissions.
With the specter of litigation in the background, it was clear that the S.E.C. was trying to put out a rule on solid legal footing, said Cynthia Hanawalt, director of financial regulation practice at the Sabin Center for Climate Change Law at Columbia Law School.
The elimination of requirements to report emissions produced up and down the value chain certainly helped reduce the risk of litigation by addressing the opposition from some corporate opponents. “I think they’re nonetheless still going to face a fossil fuel industry and related politicians that are against this rule in any form,” she said.
“The opposition that we’ve seen is largely driven by the fact that we have a huge fossil fuel industry and lobby in the United States,” she said. “That’s why there’s such tremendous opposition here that has not come up in other jurisdictions around the world that are putting forward similar climate-related disclosure rules.”
Business groups led by the U.S. Chamber of Commerce have already sued to block a California law that goes further and still requires companies to disclose emissions from suppliers and others.
At the same time, environmental organizations are gearing up to sue, saying the final rules fall short. The Sierra Club said it was “considering challenging the S.E.C.’s arbitrary removal of key provisions from the final rule.” And it would also defend the commissions’s authority to implement such a rule in the first place, the Sierra Club said, something industry lobby groups and conservative politicians were expected to challenge.
There is some evidence that climate-disclosure rules could have an effect on human emissions of greenhouse gases, the most significant driver of climate change, said Asaf Bernstein, a professor of finance at the University of Colorado Boulder who focuses on climate issues. “In other countries, when they’ve put in disclosure requirements, there have been what appears to be emissions reductions in response to those disclosures,” he said.
Even if the S.E.C. rules face challenges, some companies have begun voluntarily reporting more information about their emissions and the risks posed by climate change, said Amelia Miazad, who runs the Business in Society Institute at the U.C. Berkeley law school.
“There’s clear investor demand for the information, and so the business community will have to respond to that demand,” she said.
Christopher Flavelle contributed reporting from Washington, D.C.