In 2024 the SEC adopted a rule requiring robust reporting of emissions of greenhouse gasses by public companies.  The current SEC, under this administration, does not enforce this extant requirement; the rule itself has engendered various lawsuits claiming that the required disclosures are too costly and complex and that, in any event, the SEC is over its head in trying to address this technical area.

It should be noted that general disclosure rules require disclosure in prospectuses and periodic filings of all matters that are material to the business and profitability of a public company.  The 2024 regulations did not rely on such elements of materiality, however.  The driver was  that climate damage is per se important to understand, and thus disclosure required information about emissions of gasses in the chain of production even if no environmental damage was apparent or palpable.

Last week the SEC has announced that it is seeking repeal of the 2024 disclosure requirements, noting that the rule fell outside the SEC’s “core mandate.” This is an administrative process and so will take time, with mandatory two month public comment period; but the impact of this SEC effort is not today of great importance in that, again, the old rule is not being enforced and reporting is spotty by public companies.

Further and an aside simply reflecting the nature of current politics, one Republican SEC Commissioner gratuitously opined that the old rule reflected efforts of special interests to weaponize the securities law for “their own climate-related goals.”

There is in fact initial facial logic to the elimination of a rule that is not being enforced.  And the proposed action, to its credit, does not eliminate the disclosure requirement where current impact is being felt.  It address, in effect, the elimination of reporting for matters that may harm the environment but not the company.  However, the issue is a bit more subtle.

First, investors may be of the belief that current corporate practice does not create a current  material impact on the value of company shares, but might well believe that over time there will be economic impact which might affect investment judgment and timing.  Second, and I see this with investment policies of non-profit entities and some socially conscious individuals, there are some investors who just do not want to invest in companies with a pollution profile.  Are not these constituents entitled to disclosure as part of the SEC mandate?

Outcome is pretty clear: the rule will be killed by the Republican-controlled SEC.  Perhaps private watchdog entities will try to fill this gap; or, erhaps in the future the ebb and flow of political power will reverse what is about to happen.