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The Year in Corporate Disclosure and Disinformation 2023

If 2022 was the year that corporate climate-related financial disclosure jumped out of the boardroom into the headlines, then 2023 may be the year when the global tide quietly turned in its favor. Louder calls to accelerate the energy transition, advances in climate litigation, and shareholder activism pushed many governments and financial institutions around the world to acknowledge the need for transparency regarding climate-related financial risk. Yet the US government stubbornly remained behind the curve thanks to obstruction and disinformation by a few concentrated interests. Here’s a roundup of the year’s high and low points in this ever-evolving realm. 

European Union and California Lead the Way 

Many major economies have already put climate disclosure requirements in place, including Singapore, Canada, and the United Kingdom. This year, the European Union (EU) joined them by finalizing its Corporate Sustainability Reporting Directive. Creating a single standard for corporate sustainability reporting, the directive entered into force in January and the EU approved the first set of reporting standards in July. Supporters fought off an attempt to weaken the directive in October, which means that companies—including US corporations with substantial EU subsidiaries—will have to begin reporting in 2024.  

On our side of the pond, California lawmakers leapfrogged the federal government in September by passing two bills mandating corporate disclosure in their state. The Climate Corporate Data Accountability Act requires both public and private US-based corporations operating in California with annual revenues greater than $1 billion to disclose the full range of their global warming emissions and verify their calculations with a third party. The second bill, the Climate-Related Financial Risk Act, requires companies with annual revenues of at least $500 million to divulge their climate-related financial risks. Gov. Gavin Newsom quickly signed the bills into law, and companies will begin reporting in 2026. 

With this bold action, California potentially cut the compliance costs of a rule proposed by the US Securities and Exchange Commission (SEC) that also would require corporations to disclose their climate-related financial risk (see below). A recent analysis found that 75 percent of firms in the Fortune 500 will be subject to the California laws, and their size indicates most of them also would be covered by the proposed SEC rule.  

As companies start tracking risks and opportunities in response to the disclosure rules piling up, it becomes harder for opponents to complain that a federal rule would burden companies. Yet complain they do, as you will see.   

SEC Ensnared in Obstruction 

Anyone who hoped to close out the year celebrating the first US climate-disclosure mandate will apparently head into the holidays disappointed. Investors have demanded such disclosure for years, and the SEC—the regulatory agency responsible for protecting US financial markets—answered their calls with a nearly 500-page rule in March 2022 that is still awaiting a final confirmation. What’s the holdup? more than 15,000 comments, many of which the SEC must legally answer in writing; threats of lawsuits from ideological groups funded in part by the fossil fuel industry; and complaints about the proposed requirement to measure and disclose heat-trapping gas emissions from a company’s full value chain, known as Scope 3 emissions.  

The resulting clamor, much of it driven by disinformation, has threatened to drown out rational discussion. For example, the American Farm Bureau and other industry groups enlisted lawmakers in spreading a rumor that the rule would require farmers and ranchers to estimate Scope 3 emissions, when in fact the rule only applies to publicly traded companies.  

Accounting for Scope 3 emissions is crucial to understanding the extent of a company’s vulnerability to climate change, particularly for such high-emitting industries such as the fossil fuel sector, where Scope 3 can comprise as much as 90 percent of total emissions. The SEC’s proposal already cuts companies a lot of slack, requiring Scope 3 disclosure only if the company decides it’s “material,” meaning relevant to investors. As the Union of Concerned Scientists (UCS) pointed out in its comment on the rule, allowing companies to decide whether Scope 3 is material or not makes the rule less effective and enforceable. 

Everyone will find things to love and hate in the final rule, but the fact remains that it will represent the United States’ first steps toward alignment with other economies that have already recognized this risk, which would be a most positive and necessary step. 

Targeting Science-Based Targets 

The smokescreens of disinformation found another opening this year around a proposal to require major federal contractors to disclose their climate-related financial risk. In November 2022, a federal council overseeing acquisition policy proposed a rule requiring businesses with the largest government contracts to disclose their heat-trapping gas emissions and set targets for reducing them. The rule is the first US policy initiative to require science-based targets, which are goals that are in line with the latest climate science about slowing global warming by zeroing out emissions by mid-century. (UCS filed a comment supporting the rule.)   

The rule makes sense because governments, often the engine of their economies, employ the most people, buy the most goods and services, and own the most property. The standards governments set create incentives for the businesses that contract with them, which is why 18 countries joined the United States in signing a Net-Zero Government Initiative at the 2022 UN climate summit pledging to achieve net-zero emissions from government operations no later than 2050.  

Regardless, House Republicans attempted to cloud this logic by focusing on the rule naming an organization called the Science-Based Targets initiative (SBTi) as a third-party validator for the targets. SBTi was created in 2015 by several long-established civil society groups, including the World Resources Institute and the Carbon Disclosure Project, a nonprofit group that helps companies and governments track and disclose their climate impacts. The House Science Committee convened two hearings on the rule last fall, attacking SBTi and neglecting the fact that the rule would strengthen national security by enabling the Defense Department to determine where climate change poses risks to its operations.  

Blowing back the Anti-ESG Blowback 

While the US government wrestled with disclosure mandates, the storm of opposition to such mandates continued to brew, largely whipped up by dark money groups connected to the fossil fuel industry. Lawmakers in 37 states introduced more than 160 bills in 2023 modeled on legislation drafted by the American Legislative Exchange Council, a libertarian lobbying group funded by Chevron and other US oil and gas interests.  

The good news is these proposals proved mostly unpopular with state financial officers, who realized the laws would prevent them from exercising their fiduciary duty. As of today, less than 15 percent of the laws have passed, and many of them were largely rewritten.  

In addition, the new laws are now facing a legal backlash. Last August, the Oklahoma pensions board voted for an exemption to Oklahoma’s 2022 law banning the state from doing business with companies committed to climate risk disclosures, including such major banks as J.P. Morgan & Chase, maintaining that the law would result in a $10-million loss to pensioners. When Oklahoma State Treasurer Todd Russ objected to the pensions board vote, a retired board member filed a restraining order against the state citing violation of the First Amendment. Similar lawsuits against anti-environmental, social and governance (ESG) laws, which financial firms use to guide investments, have been filed in Kentucky and Missouri. 

Anti-ESG efforts also are floundering in Congress. In July, a group of House Republicans held a series of hearings rife with disinformation under the banner of “Anti-ESG month.” The hearing notices were accompanied by texts of more than 20 proposed bills attacking the SEC and long-standing regulations that enable shareholders to hold companies accountable and grant financial institutions the ability to respond to risk. These attacks are deeply unpopular with investors and even conservatives, which may explain why the bills haven’t reached the House floor. 

To a Less-Risky New Year 

Though the US government failed to lead the pack on risk disclosure in 2023, it’s not too late for it to catch up. Corporate risk assessment is nothing new, and executives as well as investors know climate change makes their businesses more vulnerable to supply chain, workforce, and infrastructure disruptions. For anyone still unconvinced, see recent UCS studies showing that climate change can result in workforce shortages for businesses that rely on outdoor labor, increased wildfire risk, and infrastructure damage from rising seas, to cite just a few examples. Withholding this information puts not only investors but also society as a whole at risk. Let’s work to ensure that 2024 is the year climate obstructionists accept this reality and get out of the way. 


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