Investors say U.S. SEC climate disclosure rule to clarify 'mixed bag' of data

Investment (THE)

22/03/2022 10:00

By Ross Kerber
    BOSTON, March 22 (Reuters) - Investors, including several
who run environmentally focused funds, welcomed the U.S.
government's proposed new rule on corporate disclosure of
climate-related risks and emissions, saying it would standardize
reports that now are voluntary and vary widely in quality and
breadth.
    The investors said the U.S. Securities and Exchange
Commission's draft regulation, if finalized, would make it
easier for money managers to judge how different companies and
industries are handling the challenges and opportunities of a
warming planet.  urn:newsml:reuters.com:*:nL2N2VO0O7 
    U.S.  environmental, social and governance-focused funds
(ESG) took in a record $71 billion last year, up from $51
billion in 2020, according to Morningstar, and experts noted
shareholders have been seeking better data. urn:newsml:reuters.com:*:nL1N2SM2EH
    Their responses to the draft could shape the final version
of the rule the SEC may eventually pass.  urn:newsml:reuters.com:*:nL3N2VO2K5
    Lack of consistent corporate disclosures to date has made
such analysis difficult for investors focused on ESG concerns.  
    "Right now you have a lot of disparate information coming
from different places. This should streamline how all investors,
not just those focused on ESG investing, can look at the data,"
said Sarah Bratton Hughes, head of ESG and sustainable investing
for American Century Investments in Kansas City.
    Dan Abbasi, who runs a $200 million environmentally focused
investment strategy for Douglass Winthrop Advisors in New York,
said the proposed rules also could help fund managers select
companies that stand to benefit from a transition to a
lower-carbon economy.
    "It's going to give us additional material to work with in
terms of how management not only sees the risks of climate
change, but how they are seizing the opportunity," he said.
    The draft rule calls for companies to disclose their direct
and indirect greenhouse gas emissions, known as Scope 1 and 2
emissions, and supplier and partner emissions, known as Scope 3
emissions, if material.
     
    WIDE RANGE OF REPORTS
    SEC Chairman Gary Gensler said the commission wants to
simplify reporting as investor interest in climate data surges.
As of February 41 U.S. shareholder proposals called for some
form of new climate disclosures, according to proxy solicitor
Georgeson.
    Gensler cited a report that found 65% of Russell 1000
companies published "sustainability reports" in 2019. But the
report, by the Governance & Accountability Institute, found only
around half of companies in some sectors like communications and
finance published those reports, which companies organized using
a range of frameworks.
    "The reporting right now is all voluntary, so you have
companies that don't do any reporting, or they're doing more
communications or marketing reports than comparable, reliable
investor-grade material," said Gary Levante, senior vice
president of corporate responsibility at Berkshire Bank.
    "A 'mixed bag' is the best way to describe it," he said.
  
    CHALLENGES REMAIN
    The proposed rule was advanced by a vote of 3-1, with the
dissent coming from the commission's lone Republican Hester
Peirce. The Chamber of Commerce, the largest U.S. business
lobby, called the proposal too prescriptive.
    On the other end of the spectrum, several climate-focused
activist investors said they supported the new rules even though
they would prefer the SEC mandate more Scope 3 disclosures.
    "It's a reasonable rule. Scope 3 is very difficult to
measure, but for some sectors, like the food sector, it's where
their emissions lie," said Leslie Samuelrich, president of Green
Century Capital Management.
    The Investment Company Institute, which represents global
investors, broadly welcomed the rule but said it will "carefully
study" the Scope 3 requirements. 
    Mark Gibbens, a Kansas City financial advisor and CEO of
Erudite Capital, said the SEC struck a good balance. Whatever
Scope 3 reporting burdens companies may face, he said, were
unlikely to affect performance of energy-focused ETFs he holds
such as the Energy Select Sector SPDR Fund. XLE  
    "I'm not worried," he said.

 (Reporting by Ross Kerber in Boston. Additional reporting by
Katanga Johnson in Washington, D.C.; Editing by David Gregorio)
 ((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters
Messaging: Ross.Kerber.Reuters.com@Reuters.net))