The framework is complex and SEC staff want to “get it right first time”, says PRI’s Head of US Policy.
Originally slated for October, the US Securities and Exchange Commission’s (SEC) mandatory climate reporting framework for publicly-listed companies is now expected Q1 2022, according to investment bodies and lawyers.
“The rulemaking timetable was extremely ambitious by design and was widely expected to slip, given the complexities and differing views on climate reporting,” said Michael Littenberg, Partner of Securities and Public Companies at Ropes and Gray, a law firm. It is better the SEC is “thoughtful rather than quick”, he added.
Responding to investor demand, the SEC’s public consultation on plans to regulate, monitor, review and guide climate-related disclosures from companies, closed on 14 June.
Around 87% of asset managers and asset owners said the SEC should require companies to disclose ESG-related information, according to a Principles for Responsible Investment (PRI) survey.
PRI’s Head of US Policy, Gregory Hershman, told ESG Investor that the framework has been delayed largely because “SEC staff want to get it right the first time”, but it could be published as soon as February or March next year.
“There will be litigation against the rule from the business community, so staff are working on creating a balanced rule that gets investors the information they require, but that is also legally defensible,” Hershman said.
Responding to the draft consultation, the Business Roundtable, which involves CEOs from more than 200 US companies worth US$7.5 trillion, said the SEC should implement a “regulation-lite approach” to the framework.
Other companies have said the framework should include a ‘liability safe harbour’, meaning that there will be no legal repercussions if reporting doesn’t fulfil minimum requirements.
Two of the five SEC Commissioners also outlined their concerns, questioning whether the SEC is the right agency to impose new reporting requirements, proposing instead the Environmental Protection Agency.
Hershman said companies may object to the framework on grounds that it is overburdensome, outside SEC jurisdiction and/or misaligned with cost-benefit analysis.
Issues on which the SEC must decide prior to publication include Scope 3 emissions; audited information; industry-specific reporting requirements; net zero progress; and cross-listed issuers.
Following the launch of the IFRS Foundation’s International Sustainability Standards Board, which is developing a climate standard centred around corporate enterprise value reporting, it is expected that the SEC framework will align where possible. It is also expected that the framework will build on the Task Force on Climate-related Financial Disclosures (TCFD) framework.
“There will be a public comment period after the proposals are announced,” said Bryan McGannon, Director of Policy and Programmes for the US Sustainable Investment Forum. “Then the SEC may take 12 or months to finalise the rules, depending on their complexity and the nature of the public comments they have received.”