Earlier this week, SEC Chair Gary Gensler testified in front of the House Financial Services Committee and, of course, the climate disclosure proposal was discussed. ESGToday pulled some of the points raised:
“… ‘we heard a lot of comments coming in to say Scope 3 disclosure is not as well developed, there’s not as many companies putting it out, and its frankly not yet as reliable’…
[The new California climate disclosure bills] would effectively make the SEC’s rules less costly for companies, as many would be already be required to provide these disclosure elsewhere, but that it would also be important for the SEC to ensure that the reporting under these new rules would be accurate…
Despite speculation that the finalized rule will be released next month, Gensler said ‘we’re not doing this against the clock. When the staff is ready and when the Commission is ready.’”
Something I found particularly interesting is between time markers 2:14:43 and 2:15:56 in the testimony video. Scope 3 reporting by registrants would also directly impact companies outside of the SEC’s regulatory jurisdiction. Gensler mentioned that the SEC received comments from small and medium sized enterprises, farmers and ranchers expressing their concern about this. In response, he said
“Our remit, our legal authority is about public companies… We, the SEC, don’t regulate these companies, those non-public companies, so staff is looking very closely to ensure that we stay within our authorities. It’s about the public companies.”
What struck me is that SEC’s conflict minerals rule (in place for 10 years now) does exactly what Gensler says the SEC doesn’t do – imposes reporting and cost burdens on companies outside of their “remit.” So why is that okay under conflict minerals, yet the SEC is approaching this very cautiously for climate reporting? The answer is that the conflict minerals rule was mandated (and constrained) by Congress in Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, while climate disclosure does not have an explicit legislative basis. This means the SEC could err on the side of caution here. Critics already accuse the SEC of overstepping its jurisdictional boundaries without congressional authorization.
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