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Trade Associations Comment on Proposal to Mandate Climate Disclosures

Steven.Lofchie@friedfrank.com's picture
Commentary by Steven Lofchie

In comments on an SEC proposal to standardize the inclusion and consistency of climate-related disclosures in registration statements and periodic reports, financial trade and industry associations urged the agency to balance the value of the additional information disclosed against the cost to produce it. The comment period ended on June 17, 2022.

Commenters from the financial industry included (i) the Managed Funds Association, (ii) the Structured Finance Association, (iii) SIFMA AMG and (iv) SIFMA.

The commenters issued several recommendations to the SEC, including:

  • aligning the proposed rule more closely with existing and international environmental, social and governance standards;

  • providing more flexibility regarding disclosure requirements; and

  • revising the disclosure requirements to mitigate costs for management to achieve compliance.

The American Petroleum Institute described the proposal as one that will produce "immaterial and likely unreliable information" and is generally outside the authority of the SEC.

Commentary

Should the SEC adopt this proposal, it will be challenged in court. Arguments would likely focus on (i) the SEC's authority to adopt disclosure requirements that may not be material as a matter of the economics of the investment and (ii) the quality of the SEC's cost-benefit analysis. (See Senate Republicans Question SEC on Proposed Climate Disclosure Rule).

Even assuming that the SEC should win (and it is not obvious that the SEC would win on either of these issues), the implementation of the rule would be left to the next administration. There are many potential obstacles to implementation, such as the lack of political commitment to the rule, the state of the economy and the demand for energy at that time, to name a few. It is not obvious that anything would prevent the next SEC Chair from putting an adopted rule on pause and re-examining it. Indeed, SEC Chair Gensler established the precedent for "regulatory nullification" of an adopted SEC rule by stating that the SEC would not enforce certain rules governing proxy advisors that had been adopted under the prior administration. (See generally SEC Proposal to Deregulate Proxy Voting Advice.)

In short, even assuming that the SEC adopts this rule proposal, it will be years before we know whether it might actually be implemented.

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Managed Funds Association, SIFMA, Structured Finance Association