We have published a series of posts to do with the proposed SEC (United States Securities and Exchange Commission) rule to do with climate-disclosure. The proposed rule is lengthy (490 pages) and consists mostly of dense text. Therefore, we are writing a book The SEC Climate Rule whose purpose is to explain the basics of the rule to managers who do not have time to wade through all the details.
It must be stressed that the rule is still in the proposal stage. It is likely that it will undergo legal challenges, and the SEC staff have a lot of work to do responding to the many comments that have been submitted.
Justification for the Rule
In the press release that accompanied the proposed rule, the SEC Commissioner, Gary Gensler, said,
I am pleased to support today’s proposal because, if adopted, it would provide investors with consistent, comparable, and decision-useful information for making their investment decisions . . .
Mr. Gensler’s statement aligns with the goal of his agency, which is to provide accurate, consistent and timely information to investors. The provision of such information is indeed valuable, but it is not the only reason why this rule could be so useful. Additional justifications for the rule are shown below.
Response Required
The rule forces public companies in the United States to develop programs for addressing climate change. They have to do so — it is a legal requirement.
There is a strong analogy between what is going on now with respect to this rule, and what happened 30 years in the process safety world (Appendix D). I recall a conversation on the following lines that took place in the early 1990s. A junior engineer on a chemical plant was speaking to the plant manager.
I have always wanted to upgrade our operating procedures. However, the budget has not been available. But now, Mr. Plant Manager, the funding has to be provided for better operating procedures - it’s the law.
The Plant Manager was actually quite pleased to provide the requested funding. He himself was looking for reasons to increase the facility’s safety budget; the new regulation provided him with a justification.
One Standard
There is a high degree of overlap between the many standards and rules that are in use and that have been referenced by the SEC. By creating their rule, the SEC has created one standard that everyone can follow. (That standard is mostly based on TCFD guidelines.)
Broad Application
The rule applies only to public companies working in the United States. However, it is likely that many private companies, and companies working overseas, will also comply since the rule will become a standard for all to follow.
The Name of Action
The proposed rule requires that companies disclose climate-related information. It does not require that companies actually do anything to reduce greenhouse gas emissions, or to reduce the increased risks that climate change creates. Nevertheless, once the information has been provided to the investment community, most companies will feel obliged to take action to improve their performance. Greenwashing and Blah, Blah, Blah will not be enough. (See the post and video to do with The Name of Action)
