Congressional Democrats Introduce Climate Disclosure Legislation
Senator Elizabeth Warren (D-MA) and Representative Sean Casten (D-IL) on April 15 introduced the “Climate Risk Disclosure Act” to mandate that publicly traded companies disclose climate-related metrics under the supervision of the Securities and Exchange Commission. The SEC is currently working on a similar administrative mandate that is expected to be released soon. The legislation is intended to codify the new SEC rule and protect it against legal challenges or a future Republican-controlled SEC effort to overturn it.
In recent years, shareholders have increasingly urged companies, including some ILTA members, to undertake more environmentally friendly practices, and sustainability has become a focus among banks, insurers and other financial services firms. As a result, the demand for climate-related disclosure from investors and shareholders is being written into official SEC policy. Newly confirmed SEC Chair Gary Gensler is on the record in support of the new policy, and the SEC now has a 3-2 Democratic majority.
ILTA is increasingly focused on ESG and is working to develop a library of sustainability reports to help its members develop their own reports in response to increase public pressure for greater climate transparency. At the direction of the ILTA board, the association is also seeking to put together ESG commitments, with the input from member companies.
The Warren/Casten legislation would require that publicly traded companies detail their greenhouse gas emissions, disclose any assets in fossil fuels and explain their risk preparedness for increased natural disasters that may result from climate change. Even though the Democrats have control of both chambers of Congress and the White House, it will still be extremely difficult to pass this legislation. The Democratic majority in the House is very thin. Following the November 5 election, the Democrats have lost two members by death, two by resignation and one has moved into the Biden administration. Currently, the Democratic majority is only 218-212, leaving little margin for partisan defection. In addition, any climate legislation will almost certainly require 60 votes for Senate passage in the evenly divided chamber.
Business groups, including the U.S. Chamber of Commerce, have expressed concern about the use of climate disclosures to influence corporate policies. The Chamber says that this disclosure requirement is equivalent to public shaming and is outside the scope of the SEC mandate that requires it to provide accurate information to investors to facilitate informed investment. In addition, industry is concerned that the anticipated climate disclosure requirements are not accurately quantifiable and will likely result in nothing more than an increase in aggressive class action lawsuits.