The process began a year ago, just after Joe Biden took office as US President, with Acting SEC Chair Allison Herren Lee issuing a request for comment on climate disclosures. Now under new Chairman Gary Gensler, the SEC has moved forward with the proposal that requires mandatory Scope 1 and 2 disclosures, and for larger companies, important Scope 3 disclosures. .
Alignment with other countries
“The proposed rules would align the United States with a growing list of countries that have begun mandating the Climate-Aligned Requirements Task Force on climate-related financial disclosures,” said Linda-Eling Lee, global head of esg research. and climate at MSCI. “At least 12 jurisdictions – including the EU, Canada, China and Japan – have implemented some form of regulation aligned with the TFCFD.”
“The new SEC rules give us a key element that we need: a disclosure framework comparable to what has been adopted in other countries. It’s like the UK, whereas the EU has gone a little further,” confirms Gregory Hershman, head of US policy at Principles for Responsible Investment (PRI). “The important thing is that all regulators talk to each other and speak the same language.”
“This is a watershed moment for the United States,” says Sarah Bratton Hughes, head of ESG and sustainable investing at American Century Investments. “Many companies already disclose climate risks, but they do so in very different places, not in a streamlined way. With this rule, the SEC moves ESG investing from a “fad” to a policy that recognizes material climate change risks that affect all businesses.
Hershman adds, “Investors and markets want this framework. It is in their interest to have a more transparent regulatory environment. We haven’t heard from any investor saying it hurts or it’s wrong. Increasing climate risk disclosure is for everyone, not just for ESG strategies; some asset managers may use it to further invest in new opportunities. Even passive managers will benefit, as it will improve the broader market by reducing systematic climate change risks. »
“At American Century, we are active managers and will benefit from better and more transparent data,” says Hughes. “Integrating ESG principles into all our strategies is very useful and offers better investment opportunities. We also expect the Department of Labor to release a new rule on the use of ESG principles for 401(k) pension plans. This will be another significant step forward. »
Speaking of pension funds, New York State Comptroller Thomas P. DiNapoli, sole trustee of the NYS’ $279.9 billion joint retirement fund, said in a statement that access to “consistent, comparable and reliable information, across the market, will greatly improve the state pension fund’s ability to assess and manage risks and opportunities as we navigate on our way to net zero by 2040”.
The SEC’s proposal is also applauded by consultants such as WTW. “The current rules allow a lot of latitude in disclosing material risks,” says Chris Thompson, head of the global equity manager research team at WTW. “All our activities are aligned with the zero emissions objective. We believe that ESG principles apply to all managers; we expect all our customers to think about it. We need to increase the level of conversation on these topics, for example on the cost of transitioning to zero emissions.
“It is true that for small businesses and small teams of asset managers, the new rule will require [them] think about costs and resources,” says Thompson. “But we don’t expect an increase in costs and fees for customers. Most asset managers have fairly large profit margins and may just be able to redirect resources. »
Hershman says, “Critics say the SEC is trying to do the job of the U.S. Environmental Protection Agency…to regulate carbon emissions, but that’s unfair because the SEC isn’t asking companies to take measurements ; [it] ask only [them] to tell the markets what they are doing.
Legendary investor Warren Buffett is among the skeptics. He doesn’t think it’s necessary for his Berkshire Hathaway to disclose climate change risks, as they are already reported by many of his affiliates.
Guy Spier, director of Aquamarine Capital and follower of Buffett’s investment philosophy, says, “If the SEC makes a rule that just generates more paperwork but doesn’t help the environment, then no one wins. I think Warren Buffett challenges them on this. In general, there are too many signals of virtue and not enough real action. Asking companies to report in this way is not a productive step.