Internal Dissension at SEC Delays Climate Change Disclosure

The Biden Administration has clearly announced that addressing the issue of climate change is one of its key policy priorities.  One of the central aspects of this policy was intended to be an array of new regulations by the SEC that would compel companies to make additional financial disclosures concerning the impact of their activities on climate change, and, potentially, their efforts to combat climate change.  This focus on financial regulation and climate change disclosures is one that has been embraced by many advanced economies (e.g., the EU, UK, etc.) over the past couple of years as an effective policy tool to address climate change.  However, despite the SEC’s multiple statements that it was working towards enacting such regulations, it has failed to produce a public draft after more than a year.  

This circumstance–the failure of the SEC to advance regulations concerning climate change disclosures that were intended to be a centerpiece of the Biden Administration’s climate agenda–is now the target of significant criticism by elements within the Democratic Party.  Specifically, Senator Warren has sent a letter to Chairman Gensler criticizing the SEC, stating that the “delays are unwarranted and unacceptable, and violate the commitment, which you made seven months ago, ‘to develop a mandatory climate risk disclosure rule proposal for the Commission’s consideration by the end of 2021.'”  There has been other criticism within the Democratic Party’s progressive wing concerning the Biden Administration’s lack of momentum on the issue of climate change, and it is altogether possible that the lack of activity by the SEC may become the focus of sustained attack by these individuals and organizations.

Further, based on public reporting, it appears that internal disagreements among the Democratic SEC Commissioners are the cause of much of the delay that has antagonized elements within the Democratic Party.  Specifically, news organizations have reported that the three Democratic SEC Commissioners are divided, among other things, about whether Scope 3 emissions should be included within any reporting requirements and concerning the definition of materiality within the climate change context.  The fact that these disagreements about the proper regulatory approach have occurred among Democrats may also be a reason for progressive ire at the SEC. 

In any event, when a prominent Senator publicly demands answers from a regulatory agency, things tend to happen. . . .  Senator Warren’s letter demanded a response from the SEC by February 23rd concerning, among other things, “a clear timeline for publication of the climate disclosure rule and the rulemaking process that will be kicked off with its release” and “a summary of any concerns regarding the agency’s statutory authority to impose a climate disclosure rule.”  Interested observers should expect developments over the next few weeks. 

Democratic U.S. Senator Elizabeth Warren criticized the U.S Securities and Exchange Commission (SEC) on Thursday for delays to its landmark climate change risk disclosure rules and called for “quick action” on the issue. Last year, the SEC began working on a new rule requiring U.S.-listed companies to provide investors with detailed disclosures on how climate change could affect their business. The SEC initially said it would publish a draft in October, but Chair Gary Gensler subsequently pushed that deadline to January. Reuters reported last month that the agency was trying to decide whether it should require companies to disclose not only their own greenhouse gas emissions, but those generated by their suppliers and other partners. Bloomberg reported this week that the agency’s commissioners are divided over how far to go.