Certain business groups, including those representing oil and gas companies and retailers, are warning the Securities and Exchange Commission that climate disclosure requirements could subject them to high costs, especially disadvantaging smaller companies and deterring their growth.
Their concerns come as the SEC is taking steps toward setting requirements for public companies to report their greenhouse gas emissions and the physical risks they face from climate change. The SEC recently finished accepting public input on the issue, and it could propose a disclosure framework before the end of the year.
Some of the biggest investors, asset managers, and pension funds have increasingly called on the SEC to impose disclosure requirements. Even some major public companies, such as Apple and Salesforce, have joined those calls, though supportive corporations typically already conduct comprehensive voluntary climate disclosures and have the institutional capacity to report their emissions.
However, some business groups fear a climate disclosure regime will require their companies to spend to hire teams of consultants and lawyers to oversee a lengthy, complex reporting process. That could be a particular strain on smaller businesses, which don’t have built-in sustainability teams to handle such information-gathering.
CLIMATE DISCLOSURE REQUIREMENTS LIKELY AS INVESTOR AND BUSINESS SUPPORT GROWS
“Retailers spend thousands of labor-hours and significant consulting fees to multiple parties, including consultants and independent auditors, to provide the requested information every year,” wrote Stephanie Martz, chief administrative officer and general counsel of the National Retail Federation, in comments to the SEC earlier this month.
Even retail companies that already voluntarily disclose climate information “decry a continually evolving process,” Martz added. “They spend 6-months preparing a 100-page report that few investors may read because they have differing views of what they consider to be material.”
So far, reporting greenhouse gas emissions and physical risks from climate change has been only voluntary in the United States. There are several voluntary climate change frameworks under which companies can report, but investors and environmental activists say the information that is reported is inconsistent and often incomplete, making it difficult to compare companies’ performance and risks.
Environmental activists acknowledge there is a cost to companies for conducting climate disclosures, but they say the cost of not knowing the risks from climate change is far greater.
For example, Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, noted oil and gas companies wrote off roughly $145 billion in stranded costs, or abandoning investments in fossil fuel reserves and production operations, last year as pressure to transition to lower-carbon resources increases. Extreme weather made worse by climate change is also costing governments and companies billions to rebuild and repair damages.
Rothstein also said roughly 90% of Fortune 500 companies are already filling out some type of climate disclosure, with some companies even conducting disclosures under multiple different voluntary regimes.
“For some companies, their cost may go down” with one streamlined disclosure system in the United States, Rothstein said. For other companies, “in the short term, [cost] goes up, but then you build it into your system,” he added.
However, some business groups say an SEC regime would layer additional requirements on top of emissions reporting mandates companies already face. Oil and gas companies, for example, already report their greenhouse gas emissions to the Environmental Protection Agency’s reporting program.
If the SEC’s disclosures require an additional mandatory third-party audit, “companies would need to incur significant additional costs to design, document, and implement an additional control environment for climate change data to conform to an entirely new mandatory framework,” wrote Matt Hite, vice president of government affairs for GPA Midstream, an oil and gas group, in comments to the SEC.
“The burden of such costs would limit a company’s discretion and ability to provide the meaningful and decision-useful disclosures investors desire,” Hite added.
Business groups such as the National Retail Federation, as well as free market groups, also raise concerns that climate disclosure requirements could deter private companies from growing.
Mandating climate disclosures will “make it even less attractive to become a public company in the United States,” said David Burton, senior fellow of economic policy at the conservative Heritage Foundation. He noted that over the past 25 years, the number of public companies in the U.S. has declined by roughly half.
“Ordinary investors are going to be harmed by this because they won’t have access to the early-stage companies,” Burton added. “Entrepreneurs are gonna be harmed because they won’t have access to public capital.”
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Some disclosure critics also question whether the SEC even has the authority to mandate climate disclosures, raising doubts that information about emissions and climate risks are “material” to investors’ decision-making.
“The big takeaway is when a framework is adopted, especially without statutory authority or clear direction from Congress, you tend to really drive costs up for everybody,” said Clint Woods, a policy fellow for Americans for Prosperity.
