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Jul 18, 2019

House panel passes climate risk disclosure bill

Legislation faces challenges but highlights growing pressure for reporting

The House Financial Services Committee on Wednesday voted to approve a bill backed by several Democratic presidential candidates that seeks to boost and improve climate-related corporate disclosures under new SEC rules.

The Climate Risk Disclosure Act of 2019 would order the SEC to consult with climate experts at other government agencies and then issue rules requiring that each public company disclose:

  • Its direct and indirect greenhouse gas emissions
  • The total amount of fossil fuel-related assets that it owns or manages
  • How its valuation would be affected if climate change continues at its current pace or if policymakers manage to restrict greenhouse gas emissions to meet the 1.5 degrees Celsius goal
  • Its risk management strategies related to the physical risks and transition risks posed by the climate crisis.

The act would also direct the SEC to tailor these disclosure requirements to different industries and to impose additional disclosure requirements on fossil fuel companies.

The legislation ‘will help investors appropriately assess those risks, accelerate the transition from fossil fuels to cleaner and more sustainable energy sources and reduce the chances of both environmental and financial catastrophe,’ according to a statement from the office of Rep Sean Casten, D-Illinois, who introduced the bill in the committee.

The bill must now be approved by the full House, as well as the Senate, which is likely to prove difficult. If successful, it would then almost certainly face being vetoed by President Donald Trump, whose administration is skeptical of climate change and pulled the US out of the Paris climate change accords. But the legislation has attracted considerable political and industry support, reflecting the growing pressures on companies to make climate-related disclosures – with or without governmental requirements.

As well as Casten, the bill was introduced by Senator Elizabeth Warren, D-Massachusetts, who is running to be the Democratic nominee for president in 2020. According to Casten’s office, the Climate Risk Disclosure Act is co-sponsored by senators Michael Bennet, D-Colorado, Cory Booker, D-New Jersey, Kirsten Gillibrand, D-New York, Kamala Harris, D-California and Amy Klobuchar, D-Minnesota, all of whom are also running for president. 

In addition, the act is co-sponsored by a further nine Democrats in the Senate including Dianne Feinstein of California and Chuck Schumer of New York.

Casten’s office says the legislation is further endorsed by more than 20 organizations such as As You Sow, Friends of the Earth, Greenpeace USA, the Sierra Club, Sisters of St Francis of Philadelphia and Vert Asset Management.

Witnesses at a July 10 congressional hearing gave their support to the bill. In written testimony, Ceres CEO and president Mindy Lubber said her organization supports SEC climate disclosure rules ‘because of the need for comparable, robust reporting that meets investors’ needs and helps companies manage risks. Also, because of the urgency of the climate crisis, we cannot afford to continue hoping that SEC leadership will prioritize climate risk disclosure and fully implement the 2010 [SEC] climate disclosure guidance.’

Voluntary disclosure will continue to be an important means for companies to communicate about their impacts on people and the environment and the risks and opportunities they face, Lubber said. But she added that only rules can give investors the robust disclosure they need ​from all companies​ to make better investment decisions.

‘The​ Climate Risk Disclosure Act of 2019 ​will allow the market – through investors and others – to better assess risks posed by climate change and take advantage of opportunities, spurring both public and private sector action on the issue, while promoting financial stability across the US economy,’ she wrote.

Lubber was critical of the SEC’s track record in promoting reporting. ‘Unfortunately, today the SEC climate disclosure guidance is not being implemented or enforced,’ she wrote. ‘In many ways it appears that the SEC is abdicating its responsibilities and, at the present time, its efforts are simply not resulting in meaningful improvement in the quality of climate risk disclosure in financial filings.’

An SEC spokesperson declined to comment on this criticism and the passage of the bill.

James Andrus, investment manager for sustainable investments at CalPERS, in testimony to the panel on July 10, said the pension fund manager backs the Climate Risk Disclosure Act ‘because it will support investors in understanding the sustainability of their investments and in the development of the type of sustainable economy through which pension funds such as CalPERS can generate the returns we need over the long term.’

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...