Schatz, Whitehouse Urge SEC To Address Financed Emissions, Dark Money In Mandatory Climate Disclosure Rules

WASHINGTON – Today, U.S. Senators Brian Schatz (D-Hawai‘i) and Sheldon Whitehouse (D-R.I.) submitted a comment letter to the U.S. Securities and Exchange Commission (SEC), highlighting several priorities for the Commission’s ongoing evaluation of climate change disclosure regulations.

“The market needs to know how exposed individual issuers are to climate risks, and how they plan to manage their exposure. That information needs to be decision-useful to investors: detailed, tied to financial statements, and easily comparable across different companies,” said Senator Schatz. “The SEC has the authority and the obligation to improve market efficiency and reduce systemic risk by mandating climate disclosure. And this must include disclosure of financed emissions: the contributions financial firms make to the climate crisis through their financing and investing work. We must ensure these firms’ stated climate goals are consistent with their actual business activities.”

“The market will be a very powerful force for curbing climate change if investors can get the information needed to gauge financial firms’ real levels of exposure to climate risks,” said Senator Whitehouse.  “Improved climate disclosure standards will also help ensure corporations – many of which have great stated policies on climate – are actually walking the walk when it comes to lobbying and investing.”

The comment focuses on several specific issues that are important components of a comprehensive climate-related disclosure framework:

• Incorporating climate risk into audited financial statements. Investors are not well served by anecdotes and best-case scenarios. Climate risks must be reflected in issuers’ financial statements, so that auditors can evaluate whether the assumptions underlying financials are clear-eyed about the likelihood of such risks and consistent with management’s internal planning.
• Financed emissions disclosure. Climate change is not an exogenous shock: there are fees and short-term profits to be made financing the activities that drive climate change. The SEC has the responsibility to make financial firms disclose the greenhouse gas emissions they enable. This should include off-balance sheet activities that exacerbate this systemic risk, even if they do not pose an immediate risk to the financial firm.
• Use-of-proceeds statements. To avoid divestment, banks and investors often cite the capital needed to aid the low-carbon transition. But without transparency and specificity on how companies plan to use the capital they raise, there is no accountability associated with those claims. The SEC should incorporate climate disclosure into the prospectus issuers file with the Commission related to securities offerings.
• Lobbying and political spending. Corporate interests hide their political influence activities behind opaque front groups and powerful trade associations. In many cases, individual companies make lofty climate commitments while contributing to anti-climate lobbying efforts behind the scenes. These efforts mislead investors and undermine financial stability. Investors have a right to know the details of companies’ climate-related spending and lobbying activities.

Full text of the comment letter is available here.

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