Democrats Urge SEC to Finalize Climate Disclosure Rule, Caution Against "Softening" Requirements

Senator Elizabeth Warren (D-MA), Senator Sheldon Whitehouse (D-RI), Representative Dan Goldman (D-NY), Representative Jamie Raskin (D-MD) and 47 other Democratic lawmakers urged the SEC to finalize its proposed climate-risk disclosure rule and cautioned against "softening" and "scaling back" the proposed requirements.

Rule Proposal

In March 2022, the SEC proposed a series of rule changes that would standardize the inclusion and consistency of climate-related disclosures in registration statements and periodic reports (see previous coverage). The information provided in these disclosures would include (i) climate-related risks that could have material impacts on business operations or financials, (ii) certain climate-related financial statement metrics and (iii) disclosure of the registrant’s greenhouse gas emissions. The rule would require both domestic and foreign registrants to include certain climate-related information in registration statements and periodic reports (e.g., Form 10-K or Form 20-F).

Letter to SEC Chair Gary Gensler

In the letter to Chair Gensler, the legislators called the proposed rules "necessary and overdue," saying current disclosure requirements of climate risks do not provide adequate investor protection. In particular, the legislators emphasized support for keeping Scope 3 emissions disclosures in the proposal, which would prevent firms from offloading their emissions-intensive activities to suppliers or downstream customers in an effort to appear cleaner. They warned that without the Scope 3 requirement - which they said comprises "nearly 90 percent of fossil fuel companies’ emissions" - companies would be able to conceal their exposure to climate risk from regulators and investors. The legislators also called on the SEC to consider that nearly all comment letters from investors were in support of the Scope 3 requirement, stressing that the SEC's mandate is "investor protection, not issuer protection."

The legislators stated that in light of the ongoing delays in adopting the rule, the SEC would be "failing its duty to protect investors" if it adopts a "watered-down" final rule that does not include "key reporting requirements from large public companies that investors want and need."