SEC Commissioner Peirce Criticizes SEC's Climate Disclosure Proposal
Commentary by Steven Lofchie
SEC Commissioner Hester M. Peirce warned that, if adopted, the SEC's rulemaking on climate-related risk disclosure would (i) interfere with corporate decision-making in an inflexible way that fails to consider differences between companies, (ii) over-emphasize climate risks and (iii) confuse investors.
In her remarks at the American Enterprise Institute, Ms. Peirce noted that much of the criticism of the SEC's ESG proposal focuses on the significant costs to produce the required data (e.g., see Mark T. Uyeda's comments), greenhouse gas emissions and the impossibility of producing accurate disclosures for certain vague terms. She asserted that there are several additional issues with the SEC's proposed rule, including that it would require issuer's boards to pay undue attention to climate issues — attention disproportionate to an issuer's material risks. Ms. Peirce also argued that many of the disclosures required under the proposal could be immaterial to particular issuers or could create speculation as to certain ambiguous terms, such as risks associated with "extreme" weather.
Ms. Peirce urged the SEC to consider the concerns expressed by market participants during the final rulemaking process.
Commentary
One of the principal arguments in favor of forced climate risk disclosure is that it will result in greater standardization of disclosure by issuers. "Companies, however, are disclosing different [climate-related] information, in different places, and at different times," said Chair Gary Gensler in June 2022 remarks before the Investor Advisory Committee. "This proposal would help investors receive consistent, comparable, and decision-useful information, and would provide issuers with clear and consistent reporting obligations."
Ms. Peirce points out that consistency is unlikely given that each issuer will be required to make its own judgments as to (i) how the climate will change, (ii) what legislative or regulatory changes will be implemented in response to climate change, (iii) how public perception of climate risk will change and (iv) how each of these changes will affect the issuer's supply, the issuer itself, its competitors and its audience. Good luck getting standardized results based on assumptions made by different issuers that are bound to be wildly at odds.