The Importance of Corporate Climate Disclosure and its Financial Costs Under the Biden Administration
Under the Biden administration, there is a significant push to improve the measurement of public and private environmental impacts. The federal government is actively working to enhance the measurement of environmental costs and benefits of public investments, as well as incentivize the development of measures of private sector environmental impacts and risks.
A notable emphasis on private sector sustainability metrics can be seen in the rulemaking of the U.S. Securities and Exchange Commission (SEC), while the enhancement of public sector sustainability metrics is occurring within the Department of Commerce’s Bureau of Economic Analysis in collaboration with other federal agencies.
Although the SEC has delayed its climate disclosure rules until April 2024, California and the European Union continue to move forward with their own disclosure requirements. This means that U.S. corporations conducting business in California and Europe will be required to disclose their carbon emissions, regardless of the SEC’s actions.
The political calendar may compel the SEC to act, as waiting too long could risk the reversal of the rule in 2025, depending on the upcoming presidential and congressional elections. Notably, the opposition to the SEC’s rules is centered on the scope 3 disclosure requirements, which would necessitate companies to disclose carbon emissions from their supply chains. The SEC’s delay appears to be focused on addressing this issue.
The importance of the SEC as a rule-maker stems from its ability to define terminology and specify metrics, as well as its control of access to public capital markets. Furthermore, the opposition’s claim that environmental risk disclosure is not authorized by the SEC’s enabling legislation is unfounded, as existing laws empower the SEC to compel publicly traded companies to disclose “material” or relevant facts about their operations.
In addition to the SEC’s efforts, the Biden Administration released America’s first National Strategy to Develop Statistics for Environmental-Economic Decisions in early 2023, with a focus on developing widely accepted sustainability metrics and measuring the quantity and value of natural capital. These measures will influence public policy-making and more accurately measure the financial value of public goods.
Overall, the SEC’s carbon disclosure rules play a crucial role in developing widely accepted and utilized metrics for corporate sustainability and are essential in maintaining and improving environmental quality in the United States.
