Asset owners back SEC climate disclosure proposal but need more

The Net-Zero Asset Owner Alliance has expressed its support for the proposed mandatory climate risk disclosure rules from the US Securities and Exchange Commission (SEC), but said it also needed the regulator to go further.

The Alliance (AOA), which now counts 73 members, said the SEC should also require the disclosure of companies’:

• forward-looking decarbonisation pathways for Scope 1, 2 and, where material, Scope 3 emissions;
• reporting on material scope 3 emissions separated by upstream/downstream and greenhouse gas, and the split of emissions in estimated/measured/assured; and
• degree of alignment of the company’s business model and investment plans with a Paris-compliant 1.5°C scenario.

“This would enable AOA members to chart their pathways and investment decisions,” the group said.

The SEC’s impact assessment, meanwhile, should examine cost and benefit beyond the organisational level and analyse impacts on the US economy more broadly, including the costs of inaction on climate risk disclosure, the AOA said.

Climate change’s financial impact in the US was a “risk factor that will grow over time, threatening the long-term health of investment portfolios”.

Expressing their support for what the SEC has proposed, the AOA said the members welcomed the draft rule because “without transparent, reliable and standardised climate-related disclosures, we are unable to make investment decisions and effectively design portfolio strategies to the extent we find reasonable as institutional investors”.

The asset owners indicated they were “convinced” that the SEC’s proposed rules would “significantly improve the climate data quality and availability for US-domiciled companies”.

The requirement for companies to report on scope 1, 2 emissions and, “where material”, scope 3, had the asset owners’ particular support, the Alliance relayed. The provisions regarding disclosure of climate-related risks, climate targets, scenario analysis and company transition plan reporting were also welcome, it said.

Referring to a recent paper it published about the current limits of corporate engagement, the Alliance also said that regulatory requirements for material climate-related disclosures would enable more efficient capital markets and allow for corporate engagements on more strategic topics.

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