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Climate Reporting Gets EPA Help as Wall Street Rules Face Fight

Sept. 21, 2022, 9:00 AM

The EPA is poised to scrutinize companies’ pledges to reduce greenhouse gas emissions, while Wall Street’s regulator braces for a court battle over its sweeping plan to police corporate disclosures about climate change.

The Environmental Protection Agency received $5 million from Congress last month to help standardize corporate climate action commitments and emission reduction plans and make them more transparent.

The move comes as the Securities and Exchange Commission nears completion of rules for public companies to report their emissions and progress on climate goals, drawing lawsuit threats from Republicans and business interests.

The EPA can boost corporate climate reporting now, though the agency only can do so much on its own, said Steven Rothstein, managing director of the Accelerator for Sustainable Capital Markets at Ceres, a nonprofit organization founded by investors and environmentalists.

“This moves the ball forward,” Rothstein said. “But we do not see this as an alternative to the SEC. The SEC’s work is very important.”

EPA Plans

The EPA money is meant to bolster the agency’s climate change partnership programs, a suite of voluntary alliances under which companies such as Apple Inc., Walmart Inc., and General Motors Co. make commitments to the agency and the public about their climate goals, according to a Democratic congressional aide who worked on the language.

The agency secured the funds under the Inflation Reduction Act (H.R. 5376), which President Joe Biden signed into law in August. An EPA spokeswoman declined to comment about how the $5 million will be used.

“It’d be helpful to leverage a lot of these voluntary commitments and make sure that EPA has tools to ensure that these voluntary commitments are transparent and verifiable, and the companies are being held accountable for emissions they’re already making,” the congressional aide said.

The climate reporting provision doesn’t prescribe what the EPA should use the money for, but congressional Democrats anticipate the agency spending it on computer programs, new climate models and other types of technology, according to the aide.

But the money isn’t meant to create a parallel EPA program that can act as a backstop in case the SEC rule is scrubbed, weakened or delayed, she said.

“EPA certainly plays an important role and can play an important role in helping provide usable data,” the aide said. “SEC plays a different role.”

To Anne Idsal Austin, former chief of the EPA’s air office under President Donald Trump, the funding is “a solution looking for a problem.” The data that companies feed to the agency under the climate change partnerships is already robust and standardized, she said.

“These folks are operating under state and federal permits, and the methodology and type of data requested by EPA is vetted by EPA,” said Austin, now a partner at Pillsbury Winthrop Shaw Pittman LLP. “If EPA had a real concern about the veracity of the data that was being submitted, I feel like we would’ve heard about that before.”

SEC Goals

At the SEC, Chair Gary Gensler is trying to create climate reporting rules that will survive legal challenges aimed at whether the agency has authority to mandate the environmental disclosures, which opponents say aren’t always material to investors.

Companies are particularly concerned about the SEC’s plan to require large businesses to disclose Scope 3 emissions from their supply chains, employee commuting and other indirect sources. Executives at GM, Goldman Sachs Group Inc., and other companies have met with Gensler and his staff over the potential requirement.

Several Republican attorneys general, the American Petroleum Institute and others have brought up constitutional and statutory issues with requiring environmental, social and governance disclosures. The Supreme Court’s recent West Virginia v. EPA decision also has prompted questions about the SEC’s rulemaking authority. Agencies must have clear permission from Congress to create regulations that have significant economic or political effects, the court ruled in June.

The SEC is reviewing the court decision and other issues raised about the proposal to create “sustainable” rules, Gensler said at a Sept. 19 Clinton Global Initiative discussion.

The EPA has less to worry about with its corporate emissions reporting power under H.R. 5376.

The statute gave the EPA explicit authority and wide latitude to work on corporate climate reporting, said Michael Blankenship, a Winston & Strawn LLP partner who focuses on corporate finance and securities law. But that flexibility is raising concerns about the effect it will have on companies, he said.

The new law doesn’t say which companies the EPA should target, for example, Blankenship said.

“It’s definitely broad,” he said. “It could definitely sweep up all industries because all industries at some point have some emissions.”

Shared Turf

EPA and SEC officials have said both agencies have purview over corporate climate disclosures.

In addition to the gathering information through its climate change partnership programs, the EPA has collected emissions data from large emitters, fuel suppliers, and other facilities since 2009 under its Greenhouse Gas Reporting Program. The agency uses that information to track emissions trends, which are in turn used to shape policy.

The SEC, for its part, has “broad authority to promulgate disclosure requirements that are ‘necessary or appropriate in the public interest or for the protection of investors,’” the EPA said in a letter commenting on the commission’s climate disclosure proposal.

Investor pressure for corporate climate disclosures and other ESG details has been increasing in recent years. Investors “require reliable, material ESG information” to help them invest their money and vote their proxies, the SEC’s Investor Advisory Committee told the agency in 2020.

Investors would be unhappy if they had to turn to the EPA, instead of the SEC, for such climate disclosures, Rothstein said.

“They need a clear, consistent format for information,” he said. “This is a positive development, the additional funds for the EPA, but it does not replace the need to have things in their financial reports.”

To contact the reporters on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com; Stephen Lee in Washington at stephenlee@bloombergindustry.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Jeff Harrington at jharrington@bloombergindustry.com