The SEC waffles—and all eyes turn to California
The US is now completely behind its global peers in requiring climate disclosures. California can help change that, however.
“This rule is better than nothing but nothing is a very low bar.” That’s how Allison Herren Lee, a former Commissioner with the Securities and Exchange Commission (SEC), summed up the watered-down version of the long-awaited Climate Disclosure Rule (“the Rule”) approved by the SEC in a 3-2 partisan vote on Wednesday.
The vote, and the Rule, were disappointing but not unexpected, as the opposition to any kind of climate accountability has been rife in Washington, D.C. The question going into Wednesday’s vote was whether the Commission would require the publicly traded companies they regulate (here’s looking at you, Exxon) to disclose their “scope 3 emissions,” which are the emissions resulting from use of a company’s product, such as when gasoline is burned as fuel. As had been predicted, scope 3 was omitted from the rule. Almost as bad, companies are only required to report their scope 1 emissions (from their own operations), and scope 2 emissions (associated with power they purchase) if the company deems those emissions to be “material.”
This may sound like the minutiae of corporate reporting requirements, but the vote was a political act that will have far-reaching consequences for the climate crisis all of us face. If the companies that are contributing to global heating are not required to disclose their emissions, investors will lack information that justifies climate-safe investments and de-legitimizes the fossil fuel economy. And “investors” are all of us—as everyone participates in capital markets, with our purchasing choices or through our banked savings or pension funds.
Much is being written about the import of what is in, and out, of the final rule and its impact on investors and public companies. In this article we zero in on what it all means for climate advocates in California, given the suspense around the implementation of SB 253, Senator Scott Wiener’s bill requiring reporting of scopes 1, 2, and 3 emissions, and SB 261, Senator Henry Stern’s bill requiring disclosure of climate-related financial risk. Both bills were signed by Governor Newsom last fall, and neither was mentioned in the draft budget he proposed in January1.
Our top takeaways from watching the drama unfold at the SEC are:
1. The US is now completely behind its global peers in requiring climate disclosures
Many jurisdictions and financial regulators around the globe have adopted, or are moving to adopt, of climate-related disclosure standards. From next year, investors and regulators in the European Union will have access to decision-useful data that US investors can only wish for. The chances of an improved SEC rule in the near future are slim.
Despite having three Democratic commissioners out of five, the SEC could not pass a stronger version of the Rule, which was proposed early in Biden’s presidency. SEC Chair Gary Gensler terms out in 2026; if the GOP controls the White House at that time, he will be replaced by someone far less sympathetic to the cause. Even if Democrats hold the White House and the Senate and retake the Congress, there will be limitations on what the SEC can do as it cannot re-propose a new rule that is substantially the same as an existing or previously proposed rule. On Wednesday, 10 states declared their intention to sue the SEC because the current rule is too restrictive, calling it “a backdoor move to undermine the energy industry.”
It is now down to states such as California to set the national baseline.
2. Advocates must continue to speak out.
The SEC did not make its decisions, and the Commissioners did note vote, in a vacuum. The importance of outreach to legislators (in this case, members of Congress) throughout this prolonged rule-making process could not be overstated.
Meanwhile, California advocates must not take anything for granted and will have to roll up their sleeves and get engaged, and stay engaged, with their state representatives as budget deliberations continue. California’s own climate disclosure laws—SB 253 and SB 261—must be funded in the 2024-25 California budget, and the Governor must not use his line-item veto to delay implementation. And that’s on us!
3. Once again, the Chamber of Commerce and Big Ag have played a big role.
The Farm Bureau and the Chamber have put tremendous pressure on both Congressmembers and the Commissioners to vote against the Rule. They have also brought suit against California Air Resources Board (the implementation agency for SB 253), litigation that seeks to stop the bill in its tracks. Advocates need to be aware of these forces, learn their talking points and formulate valid arguments to the contrary. Climate Action California will keep everyone updated and in the game!
4. Now more than ever we need to mobilize to fund California’s climate disclosure laws!
All stock indices were up in the hours following the SEC vote. Lack of disclosure and accountability is clearly good for business! It will take a whole state to ensure that SB 253 and the related SB 261:
Are fully funded in the budget the Legislature must pass by June 15
Survive amendment attempts
Are implemented correctly without loopholes
You can be part of this fight. Join us here.
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