SEC’s Watered-Down Climate Rule and How it Affects You

By Cynthia Thyfault, CEO, QuantaVision
Special to The Digest

The US Securities and Exchange Commission recently finalized a climate disclosure rule that has sparked intense debate across political, corporate, and environmental spheres.

Initially expected to align with the stringent climate regulations of the European Union, the SEC’s rule emerged significantly watered down after two years of deliberation and opposition. This development has led to a divide between supporters who see the rule as essential for transparency and opponents who view it as an overreach that could harm the economy.

At QuantaVision, we view this ongoing battle through the lens of a commanding officer, where strategic thinking and tactical precision are essential for achieving long-term sustainability goals.

The Rule and Its Evolution: Strategic Retreats and Tactical Adjustments

Every decision is a strategic move on the battlefield of environmental stewardship. The SEC’s climate rule was designed to standardize how public companies disclose climate-related risks, including greenhouse gas emissions and preparedness for the low-carbon economy transition.

This rule was intended to arm investors with the critical intelligence needed to navigate the risks of climate change. However, the rule was significantly watered down due to overwhelming opposition. It became a “strategic retreat.”

The SEC’s decision to make the reporting of Scope 3 emissions optional and allow companies to determine if certain emissions are material to investors reflects a tactical adjustment. It may have preserved some ground but it weakened their overall defense against climate risks.

The Coalition of Resistance

To understand the opposition, in any conflict, there are forces that resist change. Major fossil fuel companies such as ExxonMobil, Chevron, ConocoPhillips, Occidental Petroleum, and Marathon Petroleum, alongside industry groups like the American Petroleum Institute (API), the Texas Alliance of Energy Producers, and the Domestic Energy Producers Alliance (DEPA), have mounted a formidable resistance to the SEC’s rule.

Their opposition is echoed by a coalition of 25 Republican state attorneys general, including Brenna Bird of Iowa, Ken Paxton of Texas, Jeff Landry of Louisiana, Patrick Morrisey of West Virginia, Chris Carr of Georgia, Derek Schmidt of Kansas, Tim Griffin of Arkansas, Raúl Labrador of Idaho, Alan Wilson of South Carolina, Steve Marshall of Alabama, Ashley Moody of Florida, Lynn Fitch of Mississippi, Dave Yost of Ohio, Todd Rokita of Indiana, Drew Wrigley of North Dakota, Daniel Cameron of Kentucky, John Formella of New Hampshire, Doug Peterson of Nebraska, Austin Knudsen of Montana, Gentner Drummond of Oklahoma, Marty Jackley of South Dakota, Jonathan Skrmetti of Tennessee, Sean Reyes of Utah, Jason Miyares of Virginia, and Bridget Hill of Wyoming.

These AGs argue that the rule could impose severe economic consequences, particularly in states heavily reliant on the fossil fuel industry, and undermine state sovereignty.

As per careful tactical analysis, this coalition’s resistance is a well-organized defense against an advancing force, aiming to protect their strongholds from being overtaken by regulatory changes that could weaken their economic base.

Support from Institutional Investors and Democratic AGs: Strategic Alliances

In contrast, strategic alliances have formed among institutional investors and Democratic state attorneys general who support the SEC’s rule.

Among these institutional investors are the California Public Employees’ Retirement System (CalPERS), New York State Common Retirement Fund, Oregon Public Employees Retirement Fund, Vermont Pension Investment Committee, Illinois State Treasurer’s Office, Connecticut Retirement Plans and Trust Funds, Washington State Investment Board, Florida State Board of Administration, and New York City Comptroller’s Office.

These investors, managing over $2 trillion in assets, are pooling resources to push for standardized climate disclosures that they believe are essential for making informed investment decisions and managing climate risks.

Similarly, Democratic state attorneys general, including Rob Bonta of California, Letitia James of New York, Kwame Raoul of Illinois, Dana Nessel of Michigan, Josh Shapiro of Pennsylvania, Aaron Ford of Nevada, Maura Healey of Massachusetts, and William Tong of Connecticut, represent another front in this battle, arguing that the rule is crucial for ensuring that markets function efficiently and that companies are accountable for the climate risks they pose.

These alliances reflect a coordinated effort to advance the sustainability agenda, much like strategic partnerships in warfare that are essential for overcoming a well-entrenched opposition.

The Need for a Global Standard: A Call for Strategic Unification

QuantaVision believes that the debate around the SEC’s rule reflects broader concerns about the lack of a universal standard for climate-related disclosures.

There is a need for a unified command structure to coordinate efforts across multiple fronts. As a leader in sustainability consulting and ESG reporting, QuantaVision recognizes the challenges that international companies face in complying with varying national regulations.

This fragmented regulatory landscape can be overwhelming and lead to inconsistencies in reporting, much like how uncoordinated strategies in warfare can lead to confusion and inefficiency. We advocate for a global, standardized rule that would simplify compliance and ensure that all companies operate on a level playing field.

Without such a standard, the United States of America risks becoming a “rule-taker” rather than a “rule-maker” in the global regulatory environment.

Leading the Charge for Standardization

Whoever says that leadership isn’t crucial is doomed to a losing fight. QuantaVision is committed to guiding our clients through the complexities of the evolving regulatory landscape with the strategic foresight of a seasoned general.

Our expertise in ESG reporting and sustainable finance positions us uniquely to help businesses navigate these challenges effectively. We believe that understanding the arguments presented in opposition and support of the SEC’s rule is crucial for anticipating future trends and preparing for potential changes.

Through our initiatives, QuantaVision is dedicated to advocating for a more unified global approach to climate-related disclosures.

A Strategic Call to Action

As the legal battles over the SEC’s rule continue, it is imperative for investors and companies to stay informed.

QuantaVision is here to ensure that our clients are well-equipped to navigate these challenges, ultimately contributing to a more sustainable and transparent future. Our commitment to thought leadership in this space underscores our role as a trusted partner in the journey toward a global standard for climate-related disclosures.

Let this be a reminder that every action we take should be a calculated move towards victory in the battle for a sustainable planet.