01 June 2021

SEC Climate Disclosure Bill Clears U.S. House Committee Vote

The U.S. House of Representatives Financial Services Committee advanced another piece of legislation related to disclosures of environmental, social, and corporate governance (ESG) metrics on Wednesday, May 12, 2021. Introduced by Rep. Sean Casten, D-Ill., HR 2570, the Climate Risk Disclosure Act, cleared the committee with the full support of the majority members in a vote of 28 to 24.

HR 2570 would amend the Securities Exchange Act of 1934 to require the Security and Exchange Commission (SEC) to issue regulations for publicly traded companies to disclose climate-related information in their annual filings. Disclosures would include the company’s physical and financial risks associated with different climate change scenarios, including direct and indirect greenhouse gas (GHG) emissions, total fossil-fuel-related assets owned or managed, and risk management strategies to identify and mitigate the physical and transition risks posed by climate change. The bill describes transition risks on the company as those that could include government laws or policies, including international treaties and agreements, new technologies, changing markets, reputational effects related to changing consumer behavior, litigation, and assets that may lose value or become stranded.

The bill would require the SEC to issue rules within two years that would detail the information required to be disclosed, including rules for specialized industries within specific sectors of the economy (e.g., finance, insurance, transparency, electric power, mining, and nonrenewable energy). The SEC rules would also require certain metrics. For instance, the bill directs the SEC to require companies to use the federal social cost of carbon values to estimate the total cost attributable to direct and indirect GHG emissions. The administration released updated, interim values for the social cost of carbon in February 2021, which estimate the average cost of a ton of carbon at $51.

While the Financial Services Committee has already reported the bill for consideration by the full House, there has been no indication whether, or when, a vote may be scheduled. Sen. Elizabeth Warren, D-Mass., has introduced a Senate companion bill to HR 2570, though there have been no hearings or markups on it scheduled.

Notably, HR 2570, is fully incorporated into the House majority’s comprehensive climate bill, HR 1512, the CLEAN Future Act, in Section 852, “Disclosures Relating to Climate Change.” The House Energy and Commerce Committee has held several legislative hearings on the CLEAN Future Act, which have largely displayed sharp divides among members as to the best legislative vehicle for addressing climate change. A markup on the CLEAN Future Act has not been scheduled.

Sidley continues to monitor these legislative proposals and others related to climate change. For more information, please visit Sidley’s climate change and ESG practices.

SHARE
EmailShare