SEC Climate Rule by March?

After the newsletter was released on Friday, Reuters broke a story on what is likely to be the contents of the final rule.?

The big news is that the final rule will not include the most contentious part of the proposal, reporting on Scope 3 - value chain - emissions. Although this may be a blow to some, like policy expert Benjamin Schiffrin , who said, "There is no question Scope 3 reporting is important, because otherwise, you risk presenting a somewhat misleading picture of the company's greenhouse gas emissions."?

However, the watered-down rule makes litigation less likely to succeed. The Chamber of Commerce and the American Farm Bureau Federation both plan to sue the SEC (like the former did with California’s climate laws). But with Scope 3 requirements removed, their case is far weaker.?

Subsequently, other news has come out about more scaling back, this time the extent to which companies will be expected to share their Scope 1 and 2 in the final rule. Indicating that the SEC is eager to get the rule over the line before this year’s election, when a new administration may kill the policy.

After two years, the wait will soon be over. And despite the rule being softened, it is likely that it will still be litigated, similar to the litigation delaying California’s climate disclosure laws. Assuming the case is heard by the US Supreme Court, it could be affected by the decision in a case challenging a legal doctrine, known as Chevron deference, that gives federal agencies substantial latitude to decide how to interpret the power Congress gave them. Court watchers predict this doctrine will be overturned, potentially upending more than 40 years of US federal policy, including this new policy.?

As we reported last week, Chair Gary Gensler said possible lawsuits challenging the agency’s proposed climate disclosure rule would be “part of our democracy,” adding that the SEC is working to craft a rule that holds up to judicial scrutiny, and it looks like that is exactly what they have done with this weakened final rule.

China Climate Rule Correction

Last week, we shared an update on China’s new climate rule. An eagle-eyed subscriber who works on ESG in China offered some updates and corrections - here is a quick update:

• The regulations are not, in fact, finalized but are currently in a trial implementation period for public consultation, which ends at the end of Feb.
• Scope 3 is not mandatory, but those who have the capacity to measure should. Third-party auditing is encouraged, not mandated, and any disclosure that involves carbon credits has to disclose the source and quantity of the credits.
• The double materiality approach, although similar to the EU’s, has some slight differences in indicators, especially for governance and social factors.

The rules, although not as rigorous as has been reported in Western media, are still an important step.?

Wall Street Climate Crash

It was all going so well for climate action in private finance. Back in 2020, when BlackRock CEO Larry Fink said, “Climate risk is investment risk,” there seemed to be an inflection point.

Groups like COP26’s Glasgow Financial Alliance for Net Zero (GFANZ), which mobilized financial institutions with over $130 trillion in combined assets toward net zero by 2050, and Climate Action 100+, which had 700 of the world’s largest investors pledging to put their financial muscle behind climate action, appeared to be aligning their finances with a low carbon future.?

Cut to today, Wall Street appears to be backtracking. In 2022, the GFANZ group had to scale back on its requirements, and in 2023, GFANZ’s sub-sector groups, like the Net Zero Insurers Alliance, hemorrhaged members due to the “ESG Backlash.”?

Now, this week, three US financial giants, JPMorgan, State Street, and Pimco, have left the Climate Action 100+ group following BlackRock’s scaled-back involvement last week, citing “legal considerations, particularly in the U.S.” These exits were tied to allegations of “anti-competitive” aspects of the organizations in addition to withering political attacks, saying the investment firms were engaging in “woke capitalism.”

After its launch in 2017, the Climate Action 100+ strategy was to influence companies to measure and report emissions. It recently announced it would move into phase 2 of its strategy this year, which would move from reporting to encouraging emissions reductions. State Street claimed this was a step too far, saying they “Concluded the enhanced Climate Action 100+ phase 2 requirements for signatories are not consistent with our independent approach to proxy voting and portfolio company engagement.”?

Anti-ESG crusaders rejoiced at the decisions. Jim Jordan, the Republican chair of the House judiciary committee, said these were “big wins for freedom and the American economy, and we hope more financial institutions follow suit in abandoning collusive ESG actions.” and Rep. Andy Barr (R-Ky.), said, “We should take a victory lap because of what we’ve been able to achieve without legislation.” Meanwhile, environmentalist Bill McKibben said the move shows that the companies are “amoral at best.”

Government Backtracking

After years of defaulting on climate adaptation funding for the developing world through the Loss and Damage Fund, new research has revealed that the investments promised at COP26 (back in 2021) for green transition funding for developing nations are not being met. The lack of funding for the Just Energy Transition Partnerships means that low-income nations have had to keep coal plants running.

All this reneging shows how difficult it is for businesses and nations to make good on environmental promises. At the same time, investors are still considering the climate in investments just in a new, more limited way. However, these financial roadblocks hamper progress when it needs to accelerate.

CS3D on Life Support

The fate of the EU’s Corporate Sustainability Due Diligence Directive is still uncertain. While one Forbes article says the regulation is “most likely dead for now.”?

However, this Sustainable Views article claims that talks of the CS3D's demise may be premature and that the law could be voted on on February 28th, with Belgium, the current holder of the rotating EU presidency, attempting to find compromises with countries that are blocking CS3D. However, with March 15th being the latest date the EU Parliament can vote on it before the June elections, the odds are poor that this directive gets through.?

Three New EU Policies

Despite the backtracking on the CS3D, the EU forged on with three other transformational regulations that will contribute to their Green Deal:

• Carbon Removal Certification System: A provisional agreement was reached on a certification program for quantifying, monitoring, and verifying carbon removals for both natural (land management) and technological (carbon capture) carbon removal. As we shared a couple of weeks back, carbon removal is a big part of the EU’s goal to slash emissions by 90% by 2040. The new certification framework aims to reduce the chances of greenwashing, bring trust to carbon removals, and encourage new players in the sector.?
• Ban on Misleading Green Claims: The EU Council finalized the adoption of the EU’s ban on misleading, unsubstantiated green claims like “environmentally friendly,” “natural,” “biodegradable,” etc., and carbon neutral claims that rely on offsets. The bill will be signed in March, and member states will have two years to implement it in their national law.?
• Stronger Air Quality Standards: EU member states agreed with the EU Parliament on new air quality standards. The new rules mean that member states have to limit air pollutants in line with the World Health Organization (WHO) guidelines by 2030.?

Pushing Back Climate Protests?

Climate protests have regularly brought parts of London to a standstill in recent years as protests get increasingly disobedient. However, new UK rules are attempting to curtail the rights of protestors and deter civil disobedience.

One important case against five climate activists who allegedly vandalized JPMorgan’s London office goes ahead this week. The case will test the court’s ability to handle climate protest cases in an age of more restrictive rules from the British government, which some lawyers claim encroach on civil liberties. Rights lawyer Michael Mansfield said, “The government, through legislation, and the courts through cases, are tightening their grip in such a way that in certain circumstances the role of the jury is being undermined,”

Protest Disrupts ISSB Forum

I am a habitual front-row sitter, and at this week’s ISSB Symposium, it got exciting as protestors stormed the stage to protest an appearance by Bank of America by shouting about ending fossil fuels and brandishing a flag that said, bank of atrocities (filmed on my phone).?

The event itself, while less exciting, was well attended by ~1,000 people who were there to understand the latest information about international ESG standards and their adoption by capital market regulators worldwide.? Notably, there were no presentations on last week’s big news that China has issued an ESG disclosure mandate largely aligned with the European sustainability standards.?

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer.?

Other Notable News:

• Malaysia adopts an ISSB-aligned sustainability disclosure regulation. The proposals would mean Malaysia’s largest listed companies would begin phasing in ISSB-aligned climate reporting (using the IFRS S2 climate disclosure standard) starting in 2025.
• New research from the Global Strategy Group found that although few voters know what ESG is, they are overwhelmingly in favor of more responsible businesses, and a majority are against banning ESG investing.
• A new study finds that the Atlantic Meridional Overturning Circulation (AMOC), the ocean current that circulates heat and nutrients around the Atlantic poles, will eventually collapse due to melting Greenland ice. When this does ultimately happen, it will have unprecedented global impacts, making Western Europe much colder, raising sea levels in North America, and increasing heat in South America.?
• A series of recent studies show how close some global tipping points like the above AMOC example are close to becoming reality. Tipping points create positive feedback loops that further accelerate climate change.?
• Two climate activists appeared in court this week after throwing a pink powder onto the U.S. Constitution. The pair could face a maximum of 180 days in prison for defacing public property.
• Despite being the global leader in clean energy, China’s emissions increased by 3.8% annually from 2021-2023, making the world’s leading GHG polluter way off the pace needed to meet its 2025 climate goals.
• This quite startling opinion piece from David Wallace-Wells goes into the myriad ways that climate change will cause death.?
• A single-use plastic bag ban in California introduced ten years ago didn’t have the expected impact. Consumers continued buying, using, and throwing away more heavy-duty bags. An update to the rule looks to stop that, banning all plastic bags from the checkout lines.

Notable Podcasts:?

• In this week’s episode of the BBC’s The Climate Question, the hosts ask why nuclear power is back in fashion. Specifically, they are looking at last year’s COP agreement from more than 20 countries to triple global nuclear capacity by 2050. In particular, they look at some of the newcomers in the nuclear space, like Ghana.
• In the final episode of the Outrage and Optimism podcast’s three-part mini-series on “Our Rupture of Nature,” which explores humanity's relationship with nature, Christiana Figueres and her guest co-host Isabel Cavelier Adarve, discuss how our unprecedented ecological and social crises can become an opportunity for the foundation of a new way of relating to nature.