The U.S. securities industry watchdog aims to impose stringent rules for companies to report climate-related risks, and one need only to look at the shoe industry’s response to understand the political can of worms it’s become.
The U.S. Securities and Exchange Commission announced its proposals earlier this year in response to calls by investors to standardize disclosure of emissions, spell out the risks of policy and physical changes stemming from the climate crisis and explain targets and transition plans.
Several asset managers, pension funds and environmentalists have lauded the SEC for its rigour on the issue, seen as crucial to serving the interests of investors and helpful for the global imperative to reach net-zero carbon emissions within the next three decades. Companies in the oxford, sneaker and loafer game? They’re not fans.
Requirements to disclose data on emissions from numerous suppliers in numerous countries would be onerous and costly, and that’s if importers are able to get the data in the first place, the Footwear Distributors & Retailers of America said in its submission to the SEC.
Plus, think of the children. Shoes for little feet are at a 70-year high at a time when inflation is running at its hottest in four decades, the group said. “As the administration looks for ways to slow soaring inflation – the President’s top domestic policy priority – adding a massive new SEC compliance regime for environmental data would result in huge costs for companies,” it said.
The footwear industry isn’t alone in its opposition to the proposal, or various parts of it. The likes of General Motors, Exxon Mobil Corp., Occidental Petroleum and the American Bankers Association all have concerns. This, as environmental, social and governance faces a political backlash in the United States, and President Joe Biden’s climate agenda sputters as voters struggle with runaway inflation.
In some quarters, ESG is portrayed as pitting the business world against leftist do-gooders seeking to inhibit profits. But if the debate over climate disclosure rules is any indication, it’s more of a fight between emitters seeking a break and institutional investors demanding comparable data. A similar debate is taking place in Canada as investors push regulators to align climate-reporting requirements to international standards that are looking tougher.
The question is: Will the bellwether securities regulator, the SEC, move forward with its climate agenda?
GM, which has pledged to spend US$35-billion on its electric vehicle program through 2025, worries some of the rules will be “unworkable.” The automaker is concerned the timing of disclosure in annual information forms doesn’t align with its emissions reporting. That includes Scopes 1 and 2 emissions – those from its own operations and from the energy it buys – and even more so with Scope 3 emissions – those stemming from the use of its products – later in the year.
It also complains divulging details of its low-carbon transition plans and analysis of its prospects in different policy scenarios could result in it spilling confidential information, which would have “an unintended chilling effect” on decisions to adopt best practices. “An exemption protecting companies from having to disclose competitively sensitive information in complying with the proposed rule would address these concerns,” said GM, whose CEO, Mary Barra, met with SEC chairman Gary Gensler about the issue.
The American Bankers Association warns the rules overstep the SEC’s main task, which is protecting investors. It wants the commission to put limits on disclosure of Scope 3 emissions (which are by far the largest category for lenders), as well as increased transition time and “safe harbour” protection – the ability to warn investors not to rely too much on the data. “We believe the significance of these recommendations will likely require withdrawal and reproposal of the rule,” the ABA said.
The investor world is more welcoming. One of the largest asset managers, Franklin Templeton, is on board with the beefed-up requirements, which are closely aligned with the reporting framework of the Task Force on Climate-related Financial Disclosures, now the global standard. It said it wants material climate-related risks spelled out consistently and accurately in reports filed with the SEC. It also wants details on companies’ strategies to insure a “just transition” from high-carbon energy.
The asset manager is a member of the Climate Action 100+, which pushes emitting companies to reduce greenhouse gases. That organization, comprising 700 institutional investors, is highly supportive of the SEC’s efforts to mandate “useful investment insights and ensure financial markets can properly price and act on the physical and transitional risks of climate change.”
Ultimately the providers of capital will determine how much climate-related data they require and in what forms. So shoe sellers take note – even if the SEC is under pressure to soften some of its proposals, investors reserve the right to vote with their feet.
Jeffrey Jones writes about sustainable finance and the ESG sector for The Globe and Mail. E-mail him at email@example.com.
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