By Douglas Gillison, Isla Binnie and Ross Kerber
WASHINGTON/NEW YORK (Reuters) - Wall Street's top regulator will vote on Wednesday whether to adopt rules that could overhaul requirements for U.S.-listed companies to report climate-related risks.
The proposed U.S. Securities and Exchange Commission rules aim to standardize climate-related company disclosures about greenhouse gas emissions, risks and how much money they are spending on the transition to a low-carbon economy. The agency says such information is important for investors.
Currently, U.S. securities regulations do not impose common standards for climate-related disclosures. The SEC says investors need such information to be consistent and comparable. Currently, companies produce climate information on their own terms.
"As an investor, we expect full transparency about a company's fundamentals, especially climate-related risks that pose serious negative financial consequences," said Dan Chu, executive director of Sierra Club Foundation. "Without higher accountability standards, companies can withhold critical information that prevents us from making informed investment decisions rooted in full due diligence."
Chu said that failure to strengthen climate risk disclosure requirements would mean the SEC was "falling short of its mission to protect investors."
First proposed two years ago, the rules would join similar requirements in Europe and California, as part of Democratic President Joe Biden's agenda to address climate change threats through federal agencies.
The pending regulations have been bogged down by pushback from companies and Republican state officials who say they overreach the SEC's remit and will be burdensome for many organizations. They are expected to bring legal challenges once the rule is finalized.
While the SEC has not published a final draft, Reuters reported last month that it has dropped its most ambitious "Scope 3" plank which would have required companies to disclose emissions from their supply chains. That change could help the rule withstand court challenges, sources said.
Sources familiar with the matter also told Reuters last month the SEC has softened requirements for disclosures of Scope 1 and 2 emissions - pollution categories for which companies are directly responsible.
Many Democrats and climate activists worried that the changes will make the final rule ineffective.
"Climate risk is financial risk, and the SEC climate disclosure rule needs to include Scope 1, 2, and 3 emissions to be truly impactful," said Democratic Senator Ed Markey. "The SEC has a responsibility to protect investors and markets, and by leaving out Scope 3 emissions, the SEC fails to uphold its mandate."
SEC representatives had not responded to a request for comment as of Tuesday evening. In February, the agency said it would not comment on possible changes to regulations in development. "Based on the public feedback, the staff and the Commission consider possible adjustments to the proposals and whether it's appropriate to move forward to a final adoption," the spokesperson said at that time.
The proposed regulations could be the biggest overhaul of U.S. disclosure requirements in a generation, some securities law experts say. They have attracted more than 16,000 public comments, the most in the SEC's history, SEC Chair Gary Gensler has said. If the rules survive, they could prove to be Gensler's crowning legacy.
The SEC's five politically appointed commissioners will vote on whether to adopt the rules. Democratic Commissioner Caroline Crenshaw has defended the rules as originally drafted, according to a different source familiar with her thinking. However, Gensler, also a Democrat, generally only schedules votes he expects to win, suggesting he has Crenshaw's support.
Crenshaw's office did not immediately respond to a request for comment late Tuesday.
There are concerns about whether the rules could withstand a legal challenge. A 2022 Supreme Court decision curbed the U.S. Environmental Protection Agency's power to regulate emissions. Business groups, encouraged by a conservative-leaning judiciary, have also become more inclined to litigate agency rules.