Gensler defends SEC climate disclosure rule to US Chamber of Commerce

SEC chair says regulator is looking at impacts of Scope 3 provisions, believes disclosure rules would be stronger if challenged in court.

SEC chair Gary Gensler has defended the SEC’s proposed climate disclosure rules in a fireside chat with a senior official at the US Chamber of Commerce (CoC), arguing that the rules will “benefit capital markets”.

In a discussion with Tom Quaadman, executive vice-president at the CoC’s Centre for Capital Markets Competitiveness, Gensler said the point of the rule was to ensure investors had access to material information they were looking for.

While acknowledging that the SEC is not a climate regulator, he noted that 81 percent of the Russell 1000 was making some sort of climate risk disclosure by 2021 and there was no consistency or comparability.

“There’s a role for the SEC to try to bring some consistency and comparability, and that drives efficiency in capital markets because then investors get something consistent,” he said.

“We’re a securities regulator, that’s our authority. It’s about investors making decisions and ensuring that the material information is not just accurate… there’s also some consistency and comparability.”

The CoC has by its own admission been heavily engaged in lobbying on the SEC climate rule.

The discussion was punctuated by frequent jokes between the pair about legal action. At one point, Quaadman noted that if the SEC had come out with disclosure rules along the lines of those passed in California, the CoC would have filed a direct legal challenge. He also joked about serving Gensler with papers on stage.

For his part, Gensler said that the best outcome for the SEC’s finalised rules would be if they were sustained in court. Having no rule at all would mean that US companies, which form a significant minority of the world’s capital markets, would have to comply with regulations in other jurisdictions instead, he argued.

“A rule sustained in court is something they can at least point to and have those discussions about whether it’s court equivalence … Substituted compliance is usually the term that’s used in these international discussions.”

Gensler added that the SEC was sensitive to many of the complaints raised in comments on the proposed rule.

While noting that investors are largely supportive of some kind of emissions disclosure and many large firms are already disclosing, he acknowledged that concerns had been raised around Scope 3 emissions, the rule’s impact on private companies and SMEs, transition risk expenditures and the sensitivity of proprietary information in scenario planning.

In the two and a half years that Gensler has been in post, the SEC has finalised 27 different rules on various topics. In nearly every one, the SEC has made adjustments based on the comments, as well as legal analysis and cost-benefit analysis, he said.

However, he defended Scope 3 reporting requirements, noting that feedback from investors suggested that understanding supply chain emissions helps them understand a company’s transition risk.

“The only remit we have at the SEC is, ‘Is it material?’” he said. “We’re not changing any materiality standards. [The Supreme Court standard] is the substantial likelihood that a reasonable investor would find it significant to the total mix of information in making an investment decision.”

Under the current proposals, firms would have to disclose material Scope 3 emissions or Scope 3 emissions included in climate targets.

However, Gensler said SEC staff were looking to ensure that demands for Scope 3 data in supply chains do not lead to the SEC doing “indirectly what we can’t do directly” in requiring disclosures from non-public companies.