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All History of US Environmental Policy

Week 3: Actors

Last March, the SEC announced rule changes to require publicly-listed companies to disclose carbon emissions and climate risks alongside other financial information to investors. The goal is for large corporations to 1) measure their carbon footprints and 2) make a subset of that information public to investors.

These rules, unlike many rules agencies like EPA implement, make no direct effect on environmental quality or wellbeing. Instead, they use the idea of “what gets measured gets managed” with the intention that companies that begin measuring their carbon footprints will find and execute emissions reduction opportunities, lessening their contribution to climate collapse. Publicly disclosing these numbers could incentivize investors to invest in companies performing better on carbon reductions and/or climate progress.

It is currently being debated whether this is overreach by the SEC, as the commission has not historically been a major player in environmental policy. Republicans, predictably, are arguing it constitutes serious overreach in telling corporations how to do business, while many Democrats see disclosing climate risks in line with traditional disclosures and wish the rules pushed further. (They require the bare minimum, in my opinion.) Commissioner chairman Gary Gensler said, “Over the generations, the SEC has stepped in when there’s significant need for the disclosure of information relevant to investors’ decisions,” noting that “it’s a disclosure regime within a long tradition of disclosure regimes.”

While these changes could be rolled back by future administrations, the process of implementing this will take over a year at minimum—the first formal update comes in April—so future changes are unlikely to move quickly. Additionally, many companies the SEC rules would apply to do business in the UK and Europe, where more comprehensive and stricter guidelines put into place over the last few years apply. If the rules do apply during the current US administration, many companies will begin efforts to measure and report emissions. My own speculation: even if future administrations roll back the rules, many companies will continue this reporting. The financial and marketing benefits of carbon reporting can be material, and taking part in the greenwashed trend of ESG investing is appealing.

One fascinating twist: due to the legal challenges the SEC faces, California last week introduced a state bill applying to all companies who do $1B+ of business in CA to disclose carbon numbers beyond the SEC’s requirements, though it remains unclear if it will pass. Since this would additionally apply to privately-held companies, California’s rules, if passed, could force wider-scale impact. This move has recent precedent: New York has floated applying pressure to fashion companies with retail locations in NYC to map their supply chains.