How a Climate Rule Got Watered Down

What should companies have to tell their investors about climate change risks?

The U.S. Securities and Exchange Commission will unveil its long-awaited disclosure rules tomorrow. They are expected to be much weaker, Reuters reported, than what the agency first proposed more than a year ago, after intense corporate lobbying and a backlash from Republicans.

“The general view is that the rules will be scaled back fairly meaningfully from the original proposal,” Michael Littenberg, an attorney at Ropes & Gray, said.

For the first time, all U.S.-listed companies will probably be required to disclose significant risks posed by climate change as well as their own climate footprints, which are known as Scope 1 and 2 emissions. But notably, the final S.E.C. rules are not expected to require companies to disclose their Scope 3 emissions, which are produced by suppliers or consumers of a company’s product.

During the S.E.C.’s comment period, companies and business groups flooded the agency with a record number of comments pushing back on the rules, arguing that disclosure would be burdensome for businesses and of limited utility for investors.

The political ground has also shifted. Over the past two years, Republicans have waged war on all things E.S.G. — shorthand for environmental, social and governance principles in business.

Even though the S.E.C. has watered down its initial proposal, right-wing critics will almost certainly sue the agency anyway — “just as surely as the sun rises in the East,” one expert told our sister newsletter DealBook — as part of a broader legal attack on government agencies and regulators. Climate activists are also likely to file lawsuits, arguing that the new rules don’t go far enough.

“Certainly there’s a political element to it,” Littenberg said. “There’s also just some pragmatism to it as well, in terms of trying to craft a rule that is more likely than not to withstand legal challenges.”

The cost of climate change

No matter what the S.E.C. does, climate disasters are taking an ever-steeper toll on businesses and people around the globe.

Extreme weather — including hurricanes, flash floods, heat domes and blizzards — is causing property damage and supply chain disruption. In 2023, the United States experienced 28 weather and climate disasters that cost at least $1 billion each, according to the National Oceanic and Atmospheric Administration. Treasury Secretary Janet Yellen said last year that losses tied to climate change could “cascade through the financial system.”

Against this backdrop, investors have been clamoring for more information that might help them make sound decisions, and regulators are trying to respond.

Think of hotel chains that own extensive waterfront property, agricultural conglomerates that are susceptible to drought and shipping companies that get pinched by weather-related disruptions. Investors in these companies might benefit from forcing companies to disclose the risks they face and how they’re trying to prepare.

Political backlash

The furor over the S.E.C. rules is further proof that climate change has become an integral battleground for the culture wars.

Republicans have rejected the idea that companies should care not just about profits but about how they affect the environment and society. Conservatives are increasingly attacking what they call “woke capitalism” at many businesses that were once their allies, especially on Wall Street.

In response, some financial firms have flip-flopped. Last month, companies including JPMorgan, State Street and Pimco all pulled out of a group called Climate Action 100+, an international coalition of money managers that was pushing big companies to address climate issues.

Foreshadowing the potential legal arguments aimed at the S.E.C. rules, some Republican lawmakers are questioning whether the S.E.C. even has the authority to require carbon footprint emissions disclosures.

“Congress has not delegated the authority to the S.E.C. to require climate disclosures,” said Representative Bill Huizenga, a Republican who leads the House Financial Services Subcommittee on Oversight and Investigations.

Yet even without the S.E.C. rules, disclosing climate risk is becoming commonplace. California and Europe have adopted rules requiring big companies to disclose substantial climate data, including, in some cases, Scope 3 emissions. Other states, including New York and Illinois, are considering similar rules.

The S.E.C. rules, while perhaps watered down, continue the push to make transparency around emissions and climate risk a part of the financial mainstream.

“The train has already left the station on climate disclosure, whether that’s climate risk disclosure or whether that’s greenhouse gas emissions disclosure,” Littenberg said. “If you look at market practice among larger companies, they’re all already, to varying degrees, disclosing this information voluntarily.”

A climate statesman steps down

John Kerry, President Biden’s departing climate chief, doesn’t have many regrets. But there is one big one: Global leaders are not delivering the trillions of dollars urgently required to help nations transition to clean energy.

“We need more money,” Kerry told me when we spoke in his wood-paneled office in the State Department last month. “We need to persuade more people of the urgency. And I think there is still too much indifference. There’s too much delay, too much procrastination.”

But Kerry immediately went on the defensive when I asked him why the U.S. contributed just $17.5 million last year to a new fund to help the world’s most vulnerable countries cope with the worst effects of climate change. Nations like Germany and the United Arab Emirates pledged $100 million each. The fact that the U.S., historically the world’s largest emitter, often struggles to sign off on money for international climate change assistance is a constant source of disappointment to allies.

“We have not been able to get congressional appropriations for things that say ‘climate,’” Mr. Kerry said. But he argued that the Biden administration had delivered more than $9 billion in foreign climate assistance last year, and that it was on its way to meet a goal of providing $11.4 billion in foreign climate aid annually by 2024.

“I don’t think we have any shame in that, particularly measured against the rest of the money President Biden has put on the table, which is in the billions,” he said.

Kerry will officially step down on Wednesday after serving as Mr. Biden’s global climate envoy since 2021. Climate change has been Kerry’s passion throughout his career.

As a U.S. senator, he traveled in 1992 to the Rio Earth Summit, the first United Nations climate meeting, to call for action on climate change. As chairman of the Senate Committee on Foreign Relations, he helped lead a bipartisan effort to cap greenhouse gas emissions, though that plan never got off the ground. As secretary of state under President Barack Obama in 2016, Mr. Kerry signed the Paris Agreement, a landmark global accord he helped to negotiate, with his granddaughter Isabelle on his knee.

(Former President Donald Trump withdrew the U.S. from the Paris Agreement. Biden, hours after his inauguration, brought the U.S. back in.)

Kerry said he saw his top job as restoring America’s reputation as a country that could be trusted to act on climate change. Over the last three years, he traveled to 31 countries to make that case.

He called the most recent U.N. climate summit in Dubai, United Arab Emirates, where nations vowed to transition away from fossil fuels, “historic.” Of the possibility that Mr. Trump could win a second term in the November elections, he said, “I’m not going to worry about that until or unless it happens.”

At 80, Mr. Kerry plans to teach a seminar on global engagement at Yale University, host conferences, work with companies and investors to spur clean energy development, and speak out on the importance of tackling climate change. Just don’t suggest he’s retiring.

“For the time being, I view this as a critical year in which we need to be moving and getting things done,” Kerry said. “And I have no idea what the future will bring.” — Lisa Friedman