Schatz, Whitehouse, Warren, Senators Call For Stronger Emissions Disclosure Requirements, Dark Money Transparency In Proposed SEC Climate Risk Rule

WASHINGTON – Today, U.S. Senators Brian Schatz (D-Hawai‘i), Sheldon Whitehouse (D-R.I.), and Elizabeth Warren (D-Mass.) submitted a comment letter on the U.S. Securities and Exchange Commission’s (SEC) mandatory climate disclosure rule, highlighting several areas for improvement and key elements that the SEC should preserve in its final rule.

In addition to Schatz, Whitehouse, and Warren the comment letter was signed by Senate Banking Committee Chairman Sherrod Brown (D-Ohio) and U.S. Senators Martin Heinrich (D-N.M.), Alex Padilla (D-Calif.), Tammy Baldwin (D-Wis.), and Jeff Merkley (D-Ore.).

“I strongly support the SEC’s proposed rule, which will finally give investors the information they need to assess companies’ climate risks and risk management strategies,” said Senator Schatz. “The SEC’s mandate is investor protection, and the agency has the authority and the obligation to give the market the detailed, consistent, and comparable information it needs to allocate capital efficiently. This rule will crack down on corporate greenwashing by holding registrants accountable for their stated climate goals, and it will give investors reliable data to evaluate their portfolio risk exposure.”

“Climate change represents a major financial risk for publicly traded companies,” said Senator Whitehouse. “One of the most powerful tools businesses have to fight climate change – and reduce their investors’ exposure to climate-related risk – is their political influence effort.  Investors need to know if companies are engaged in behavior that is harming the planet and ultimately, their own bottom lines.”

“The SEC’s proposed climate disclosure rule is powerfully important, providing consumers and investors with more knowledge about environmental risks and fossil fuel emissions,” said Senator Warren. “But the rule must be strong enough to produce full and transparent disclosures, and we’re urging the SEC to make improvements and preserve key elements in the final rule.”

The comment letter focuses on several areas for improvement that would strengthen the final rule:

• Disclosure of climate-related political influencing activities, via both direct lobbying and membership in trade associations and other dark money groups. Anti-climate lobbying efforts have been some of the most damaging impediments to federal climate action, and mandating this information is consistent with the proposed rule’s focus on risk management disclosure and governance disclosure.
• A quantitative threshold for Scope 3 disclosure. In the absence of guardrails, allowing registrants to determine the materiality of their Scope 3 emissions may lead to underreporting. The SEC should establish a quantitative threshold for Scope 3 reporting (e.g., if Scope 3 emissions are 40 percent or more of a registrant’s total emissions, disclosure is mandatory).
• Stronger requirements for sector-specific disclosures. For example, the rule should explicitly require financed emissions disclosure from all reporting financial institutions, including so-called “facilitated emissions” from off-balance sheet activities like underwriting. The rule should also require companies in the forest, food, and land-use sectors, and other companies with high natural resource dependencies in tropical commodity supply chains, to disclose Scope 3 emissions from land-use change and deforestation.

The comment also highlights several key elements of the proposed rule that the Commission should preserve in their entirety in the final rule:

• Scope 3 disclosure. Disclosure of Scope 1 and 2 emissions alone conveys a very incomplete picture of the climate-related risks to which companies are exposed. The technical work of calculating Scope 3 emissions is well underway, and the Commission’s requirements are thoughtfully crafted and not overly burdensome.
• Targets and goals disclosure. The proposed rule would require a registrant to disclose data every year on its progress toward achieving climate-related targets or goals, and how such progress has been achieved. Corporate greenwashing and toothless sustainability pledges are far too common, and the Commission is right to require companies to disclose their progress to investors.
• Materiality threshold. The proposed disclosure framework relies heavily on materiality determinations. Throughout the rule, the Commission articulates a threshold for materiality that is consistent with precedent and affirmed by the Supreme Court, and relies on both quantitative and qualitative considerations. There is little doubt that a reasonable investor would consider these disclosures important, as investors have been demanding this information for years.

The full text of the comment letter is available here.

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