SEC Urged to Not Tell US Companies to Comply With Alternative Climate-Disclosure Rules

Gary Gensler, chairperson of U.S. Securities and Exchange Commission, speaks during an open session of the Financial Stability Oversight Council at the Treasury Department in Washington on May 10, 2024. Andrew Caballero-Reynolds/AFP via Getty Images

The U.S. Chamber of Commerce on June 17 asked the Securities and Exchange Commission (SEC) to not follow a climate change-related request from 37 Democrat lawmakers. These lawmakers want the SEC to ask U.S. companies to follow different greenhouse gas reporting rules while the SEC’s own climate reporting rule is on hold because of ongoing lawsuits.

Dozens of lawmakers wrote a letter to the SEC on June 4, asking the agency to release a statement reminding U.S. companies that are subject to “alternative climate reporting regimes,” such as those in California or the European Union, that they must comply with those regimes while the SEC’s own climate disclosure rule is under judicial review.

The U.S. Chamber of Commerce objected to the lawmakers’ request. In a June 17 letter to SEC Chair Gary Gensler, the business lobby stated that the SEC would be acting in a way that’s “imprudent and unprecedented” if it were to issue such a notice. The chamber argued that the requested notice would both confuse U.S. companies and impose burdens on their staff as they struggle to track and comply with multiple climate reporting frameworks.

“Such a statement by SEC would be imprudent and unprecedented,” Tom Quaadman, executive vice president of the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce, wrote in the letter.

“Appropriately, SEC does not regularly publish notices to SEC registrants advising them to comply with other laws and regulations outside its remit, namely U.S. federal securities law. There is no mandate in the SEC’s authorizing statutes or precedent in the SEC’s 90-year history to do so.”

Mr. Quaadman argued that a California climate reporting framework is being actively litigated, that the EU framework is not yet in force, and that a third reporting regime is not material for U.S. companies.

The lawmakers, by contrast, argued in their letter that the SEC has a history of providing climate-related guidance to companies and that the threats from climate change justify using the SEC’s administrative authority to spur companies into more urgent and robust climate action.

The climate-related reporting that the disclosure frameworks require includes greenhouse gas emission levels and the impact of climate change-related events and mitigation measures on their business operations.

The SEC did not respond to a request for comment from The Epoch Times by press time.

SEC’s Own Climate Rule On Hold

In March, the SEC finalized a rule requiring publicly traded companies to disclose climate-related information in their annual reports and registration statements starting in 2025.

The rule would require companies to disclose the impact of severe weather, carbon offsets, and renewable energy certificates in financial statements. Companies would also have to report on greenhouse gas emissions, governance of climate risks, the impact on strategy and business, risk management processes, and climate targets.

The rollout of the SEC rule sparked lawsuits from several Republican states, companies, and business groups seeking to block the regulation.

Opponents argued that it would be burdensome and expensive for companies and that it would trigger a flood of inconsistent information that would overwhelm investors rather than inform them.

In the course of litigation over the SEC’s climate disclosure rule, the Fifth U.S. Circuit Court of Appeals issued an administrative stay on March 15. Afterward, the SEC filed for judicial review of its rule and later stated in an April 4 filing that it was putting the rule on hold until that review plays out.

Dissatisfied that the rule was on hold, dozens of lawmakers wrote a letter to the SEC on June 4, asking the agency to “vigorously defend” the now-stayed rule and “spare no litigation resources” in making sure it enters into force.

In the meantime, they also asked the SEC to issue a statement reminding U.S. companies that there are “alternative” climate reporting regimes that they should comply with while the SEC’s own climate rule remains frozen.

The alternative climate reporting regimes mentioned in the letter include one in California, another in the EU, and a third put out by the Delaware-based International Sustainability Standards Board (ISSB).

US Chamber of Commerce Opposed

The U.S. Chamber of Commerce expressed opposition to the SEC’s potential issuance of such a statement, arguing that asking U.S. companies to comply with regional or foreign climate regimes is either pointless, premature, or potentially harmful—pointing to the ongoing legal challenge directed at such reporting mechanisms in court.

Mr. Quaadman said California’s climate-disclosure regime—signed by California Gov. Gavin Newsom in 2023—is the subject of litigation and suggested that it may well suffer from “significant constitutional and other infirmities and is unlikely to pass legal muster.” Unlike the SEC’s rule, which only applies to publicly traded companies, California’s applies to all businesses that operate in the state.

The California rule requires both publicly traded and private companies with more than a billion dollars in revenue that operate in California to disclose both direct greenhouse gas emissions (known as Scope 1 and 2) as well as indirect emissions (Scope 3). This is stricter than the SEC rule, which applies only to publicly traded companies and excludes Scope 3 emissions.

Asking U.S. companies to comply with the EU Corporate Sustainability Directive is “similarly problematic,” Mr. Quaadman wrote, arguing that the first reports under this regime aren’t due until 2025 and that many non-EU companies aren’t obligated to report until as late as 2029.

“Urging US companies to comply with EU standards now would be premature at best,” he noted in the letter.

The EU’s Corporate Sustainability Reporting Directive also requires Scope 3 emissions data for both publicly and privately listed EU-based companies, as well as non-EU companies that undertake “significant activity” in the EU.

Finally, as regards the use of the ISSB climate reporting standards, the U.S. Chamber of Commerce said these “clearly do not apply” to U.S. domestic SEC-registered companies because these are for use in International Financial Reporting Standards, which U.S. domestic registrants aren’t even allowed to use in their periodic reports to the SEC.

“In sum, the Chamber believes the best public policy is for the SEC to remain focused on statutes and regulations within its jurisdiction and to defer to other regulators around the world to enforce their own rules,” Mr. Quaadman wrote.

The letter comes on the same day that the U.S. Chamber of Commerce filed a brief with the Eighth U.S. Circuit Court of Appeals urging the court to completely vacate the climate disclosure rule, calling it “unlawful several times over.”