21 September 2022

SEC chair responds to senators' concerns on cost of climate disclosure rule

Gary Gensler

The SEC is fulfilling its role as a regulator with its proposed climate disclosures rules which are not a hurdle to investments but a way to offer more information to investors, according to its chair Gary Gensler, who tackled criticisms leveraged at the proposal mostly from republican senators.

At a hearing by The Committee on Banking, Housing and Urban Affairs on SEC oversight last Thursday (15 September), Pat Toomey, junior Republican senator for Pennsylvania, argued the proposed rule was not intended to inform investors but rather to empower environmentalist pressure groups with data and discourage investment in traditional energy industries.

Gensler responded that climate risk is important to many investors and it that the proposed rule would benefit investors by making climate risk disclosures more consistent.

Senator Toomey's primary concern was with the cost and burden of the proposed rule. He said: "The SEC itself estimates that the external compliance cost of a company going public will increase by more than five times, at a time when excessive regulatory costs are resulting in ever fewer companies going public."

John Kennedy, junior Republican senator for Louisiana, argued that whilst the proposed rule would cost billions of dollars for US companies, it would not have a significant impact on global temperatures as there is no agreement with India or China for them to lower their emissions.

Gensler said that lowering global emissions was not the purpose of the proposed disclosure rule. "It's about actually helping investors get more consistent information. Even if they want to invest in what might be a brown assets rather than green assets, they will get more consistent information," he said.

Steve Daines, Republican senator for Montana, labelled the proposed rule "unreasonable" and argued that it should be withdrawn. He said: "The massive burdens that it will place not just on large companies, but also smaller companies, is going to have, I think, major downstream impacts on the companies with whom they also do business

Senator Daines highlighted the cost of collecting and reporting Scope 3 emissions as a particular concern and argued it was unreasonable to ask this of companies.

Gensler reponded that the proposal would mandate Scope 1 and 2 from listed companies but would only require an estimate for Scope 3 emissions "if the company deems that it's material or if the company has already made a public commitment to manage Scope 3".