Biden May Give Wall Street More Climate Data, and Fast

I'm your host, David Schultz. You know, one of the best parts of working at Bloomberg Law is you get free access to the Bloomberg Terminal, a computer portal that contains a dizzying amount of financial and investment data. And when I first logged onto the terminal, what amazed me most was just how much data public companies are required to disclose. It's a lot, but some people are saying

it's not enough. For example, companies have to report their profits and losses, of course, but they don't necessarily need to report how they're affecting the environment and climate change in particular. However, that might be about to change, and

sooner than you might think. More compulsory climate change reporting is something that's squarely within the Democratic parties platform, and we now have a Democrat in the White House and by extension, in charge of these Securities and Exchange Commission. Andrew Ramonis covers the SEC for Bloomberg Law, and he says there could be some action on this issue even

before Biden's nomine to lead the commission gets confirmed. I spoke with him about this earlier today, and he started by explaining exactly what companies are currently required at as close as far as reporting requirements go, the SEC technically doesn't have any that are just for climate change. Companies are required to make disclosures about climate change if it's

important to their business, like anything else. But the SEC put out guidance in twenty ten that was intended to clarify what companies should have already been doing making disclosures about the effects of climate related legislation, regulation, and other developments concerning climate change. Yeah, if material to their business, right.

I think you had something in your story about how Exxon was, you know, found out it was going to be increasing its carbon emissions by seventeen percent over a certain period and they didn't need to disclose that, right. I mean, that's that's an example of something that companies don't need to disclose, correct, not right now? And the

way that you know that was found out was. Our colleagues over at Bloomberg News received some documents about this, and yeah, it was not included in publicly release documents. So let's talk about how this could change in the future, the near future and the medium term future. You know, I get the sense that that the Biden administration really does want to tackle this issue. You know, what could change if the Biden administration was able to get everything

done that it wants to get done. Would what would change? Well, it's still too early to say with certainty what the SEC could make companies disclose in this area. Right now, the SEC is led by an acting chair and the permanent chair is still waiting for confirmation in the Senate. But you know, some have looked to recommendations from the Financial Stability Boards Task Force on Climate Related Financial Disclosures, which has several suggestions for making disclosures related to managing

and measuring climate risk. And this includes urging companies to explain their costs of transitioning to a lower carbon economy. So, in other words, the company would have to say, like, we're you know, we're assuming that there are going to be new climate regulations, and here are the costs that we're going to incur to adapt to that. That's something that companies would have to disclose possibly, and you know, well it's kind of a wait and see, we'll see

what happens. There's been no formal proposal yet from the SEC on this, just sort of suggestions for what some groups and investors would like to see. Well, the really interesting thing that you reported recently is that, you know, there could be changes happening in the very immediate term before the Biden administration's nominee, Gary Gensler even gets confirmed.

What could the acting chair of the SEC do on this given that she, you know, isn't doesn't have the full powers of a confirmed chairman right right now, the SEC is led by is a commission of that has a two to two split, so it's equally divide between Republicans and Democrats. So any rule making in this area would have to wait until a third Democrat joins, which would be Genstler if he's confirmed. But even though there's the split, that makes rule making difficult because Republicans are

unlikely to support this type of rule making. They're you know, there is some power that the acting chair, Alison Lee has, and one thing she does have her disposal is this twenty ten climate disclosure guidance, And what she could do is she could invoke this guidance to emphasize the importance

of companies providing better information to investors. It's not as powerful of a tool for her as rules with reporting requirements would be, but she can direct her agency staff to take a closer look at company filings with an eye towards the guidance. This could lead to new staff level disclosure guidance, telling companies what the agency is looking

for in their filings. Individual companies also could get questions and letters from the SEC about their climate disclosures, which would you could lead to more disclosures when these companies respond to any questions. So this is a guidance that's been on the books more or less since twenty ten. It sounds like during the Trump administration it's just kind of been collecting dust. And it sounds like because it is has already been on the books, this is something

that could be dusted off immediately. Yes, it is correct, and actually it's been gathering dust even before then. Towards the end of the Obama administration, the SEC chair Mary Joe White did not didn't use it at least in my research, there was no direct references to its use. There might have been some questions and comments sent to companies about it that were more, you know, indirectly referencing climate and things like that. But regardless, me and others

have all found generally that it decreases declined significantly. Since twenty fourteen, things were pretty quiet and on that front. So let's talk about Gensler. First off, when do you expect him to be confirmed, because, as you mentioned, he would be the sort of fifth tie breaking vote and that means that the SEC could do a lot more once he's on board. Yes, that's correct. I expect the

Senate to confirm Gensler within the next few months. But you know, I guess anything can happen in the Senate. You never never really know, even if it's under democratic control. But you know, the Senate Banking Committee has yet to schedule a hearing on his nomination, which would be sort

of the first step towards getting confirmed. And Jay Clain, who was Trump's SEC chairman, was nominated in January twenty seventeen, like Gensler was nominated in January twenty twenty one, but it took until May of that year until Clain took office, so it could even have things move relatively smoothly, could still take you know, later the spring or even into

the summer before he comes to office. And yeah, as we all know, the Senate kind of has its hands full at the moment with the second impeachment trial of the former president. So I guess we could be talking about maybe mid spring even late spring before Gensler you know, gets in and is able to enact you know, what he wants to do and what the Biden administration wants to do. But let's take a big step back here

and talk about you know, the next four years. You know, I get the sense that the Biden administration could be really really good for ESG investors, which is something that you report on a lot. First off, can you explain what ESG investing is and about how the Biden administration could impact this sure ESG it stands for Environmental, social

and Governments and it's become quite the buzzword lately. How a company handles ESG issues can help investors decide whether the company is being a good corporate cism, if it's important to their investment strategies and the environmental and social parts of ESG, including climate change matters or getting the most attention from ESG investors who have been calling on the SEC to make companies disclose more information in these areas.

So just to make sure understands these are investors who are saying, I want to invest money, but only in companies that are you know, have a good record on the environment or social issues or corporate governance issues. Correct, those are the type of investors we're talking about. God, I see. So, yeah, tell me about how the Biden administration could impact this, because it sounds like there could

be some big changes ahead for ESG investing. Yeah. Now, now these investors are hoping under at the agency under Democrat control, it could could make these types of disclosures reality, you know, but it will take time. At the SEC, the role making process, even with a Democrat majority is slow going. Usually it begins with a proposal and then it takes several months of comments, comment period and other tweaks and then you get a rule making and it can take it can take year, or it could take

years to get something. And then, of course, as listeners to this podcast know very well from the EPA and Interior Department of Interior rule making. After it comes out, then you've got the lawsuits and then you have the years and years of litigation. So okay, so I'm getting the sense it's not going to happen, you know, very quickly. No, not overnight, but once Genzler comes aboard, they can start moving into that direction more quickly than they would under

a divided equally divided commission. And is are we just talking about information disclosure or would there be other actions the SEC could take over the next four ish years or so that would benefit ESG investors. It would primarily be you know, the SEC likes to describe itself as a disclosure agency and that's its main role, is trying

to worry about issues on disclosure. You know, once once things are once there are new rules on disclosure, if companies aren't following those rules, then the SEC has enforcement power and could be bringing actions against violators in that area.

But absent actual rules, it's hard to bring enforcement cases over lack of disclosure unless it's you know something you know, if you have, you know, a huge oil spill and you don't report it in your filings, then that would be definitely material regardless of the climate disclosures and if you didn't report that then the SEC would probably go after you. But you know, SORR if absent some things like that, you know, I got to wait on enforcement.

That's it for today's episode of Parts Pavilion. If you want more environmental news, check us out on Twitter. We use the handle at environment just that environment, and I'm of course at David B. Schultz if you want to disclose anything to me. Today's Parts Pavilion episode was produced by myself and Josh Block. Parts Pavilion was created by Jessica Coombs and Rachel Dagel. The music for today's episode is a message by Jazarre and running by Enrico Pierra

Nunci and Silvano Jimenti. They were used under a Creative Commons license. Thank you so much for listening. Hi, I'm Laura Carlson, and I'm dropping into your feed to tell you about Prognosis, a new daily show from Bloem. Monday through Friday. We'll spend a few minutes with you every afternoon to help you understand life in the time of COVID nineteen. The show is available on Apple Podcasts, Spotify, or wherever you listen so come back every afternoon for our coverage and stay safe