The US Supreme Court’s recent decision to curtail the Environmental Protection Agency’s ability to restrict CO2 emissions from power plants will not derail the country’s move towards a low carbon economy, according to US environmentalist Tim Mohin.
“Our message is don’t panic, prepare. We are in an environmental crisis with climate change that will affect the economy and individual investments,” Mohin said. “I don't see that there is any change at all in the need for companies offering financial instruments under any ESG banner to get their act together.”
Mohin is the chief sustainability officer at carbon accounting platform Persefoni, and worked on establishing global ESG disclosure standards in his previous role as the former chief executive of the Global Reporting Initiative.
The Supreme Court's move has raised fears about other federal agencies’ powers and could potentially undermine the ability of the Securities and Exchange Commission to impose a proposed rule requiring public companies to disclose climate risks.
Some lawyers believe the SEC is acting within its remit with its climate disclosure proposal, which will require listed companies to disclose climate-related information in filings about the oversight and governance of climate risks and how these risks might impact on their businesses.
“The rules that the SEC adopts, if they look anything like the proposal, should withstand judicial scrutiny," said Kristina Wyatt, deputy general counsel and senior vice-president of global regulatory climate disclosure at Persefoni.
Bankers are also expecting the SEC’s proposal to be implemented, which will require companies to disclose material climate impacts, greenhouse-gas emissions, including Scope 1 and 2 emissions and limited Scope 3 emissions, and any targets or transition plans.
"There is still wide expectation for the SEC to be able to pass some climate risk disclosure," said Trisha Taneja, global head of ESG, origination and advisory at Deutsche Bank.
"I think everyone is preparing for some kind of legal challenges to the SEC's proposals. Perhaps it won't go through in its existing form, but the expectation from a market perspective is that it does go through in some way, shape or form."
"Time to wake up"
Whether the SEC’s proposal is passed or not, US companies will find it difficult to avoid increasing disclosure requirements as many are already subject to European regulation, including dual-listed companies in London and New York, and are already facing requests from global investors to supply information that complies with European disclosure.
"If companies are saying that maybe the Supreme Court will protect us or maybe the SEC won’t act, they're fooling themselves," Mohin said. "It's time to wake up."
If the proposal is adopted in December, large companies will have to file in 2024 for fiscal year 2023 and smaller companies have another year to start reporting. Scope 3 emissions have another year beyond those deadlines.
Failure to disclose the information will increasingly be seen as a governance problem, which could lead to lower demand for transactions from investors and affect valuations and share prices.
"Ignoring climate change is not an option, companies have to get serious about understanding their carbon footprint and getting their governance in order," Wyatt said.