Biden’s disclosure of climate risks hits industry resistance

The Biden administration is struggling over rules that would force U.S. corporations to disclose more information about their climate risks and greenhouse gas emissions, from pizza deliveries and steel manufacturing to financial services and making cement.

“Number one, the entire sustainability agenda is built on the premise that we have to lead by example, right?” Brenda Mallory, chair of the Council on Environmental Quality at the White House, said at a recent Washington Post Live event. “We are the largest employer in the nation. We have the most real estate in the nation, and so these all give us tools that are really important for us to take advantage of.”

Yet as the administration leans into the climate disclosure campaign — led by the Securities and Exchange Commission, the General Services Administration and the Treasury Department’s Federal Insurance Office — it is facing broad opposition from companies, as well as House Republicans and industry-funded groups that oppose Biden’s climate agenda.

Supporters of the new rules fear that the agencies, facing the likelihood of lawsuits, might end up watering down or delaying their disclosure actions. Robert J. Jackson Jr., a former SEC commissioner and now a law professor at New York University, said Thursday that the SEC might wait months, delaying from April until the fall.

Many companies say the disclosure rules are too expensive, complicated and far-reaching. At the same time, many climate activists fear that federal agencies, swamped by comments, are overreacting to corporate pressure.

“There’s quite a bit of pushback from the regulated entities on these rules,” said Rich Sorkin, co-founder and chief executive of Jupiter, a firm that analyzes climate risks for organizations looking to strengthen their climate resilience. And with the likelihood that a climate disclosure bill will end up in the courts, federal agencies such as the SEC, he said, are trying to formulate proposals that will “stand up to legal challenges.”

Here’s the state of play for big disclosure rules on the table:

Each year, the federal government purchases about $665 billion in goods and services from a range of contractors, including energy intensive industries making steel, asphalt, concrete and other construction materials.

In the past, those contractors did not need to reveal much about their carbon footprints. But in November last year, a group of federal agencies — including the Pentagon, NASA and the General Services Administration — proposed far-reaching requirements for contractors to report their climate impacts and risks. In addition, said Alexandra Thornton, senior director of financial regulation at the left-leaning Center for American Progress, it requires contractors “to show how you plan to reduce your emissions.”

Business groups are pushing back. In a February letter, the U.S. Chamber of Commerce said the proposed rules would “impose immense costs on government contractors of all sizes, costs that would be passed on to the government and ultimately to taxpayers.”

It also objected to the cost-benefit analysis performed for the rule and questioned whether the federal agencies need congressional authority to use government contracts “as a vehicle for furthering climate policies.”

Now it appears the federal government may be delaying its final rulemaking, said Kevin Dempsey, president of the American Iron and Steel Institute, whose members sell large amounts of steel for projects such as federally-funded bridge and road construction.

“Initially the GSA wanted standards by now,” Dempsey said. “We pushed back some. There isn’t a new deadline.”

One quandary is how companies should measure their emissions and climate risk. With no governmental tool available, such analyses are performed by small firms that major companies have disparaged.

Even so, the website of one nonprofit data firm, called Building Transparency, has signed up 33,000 users; during March, there were 22,500 searches of its database, its chief executive, Stacy H. Smedley, said. Companies can use the firm’s “Embodied Carbon in Construction calculator” to estimate emissions from various industrial activities. Concrete and steel products drew the most searches.

The disclosure requirements of Biden’s “buy clean” call come in steps. Major federal contractors — those receiving more than $50 million in annual contracts — would be required to publicly disclose three levels of greenhouse gas emissions, including two produced directly from their own operations and suppliers and one calculated from their customers down the supply chain.

Federal contractors with more than $7.5 million in annual contracts but less than $50 million would not need to report their customers’ indirect impacts — known as Scope 3 emissions. Such contractors with less than $7.5 million in annual contracts would be fully exempt from the requirements.

Not all companies oppose the disclosure requirements. Some hope to use them as a competitive advantage.

One of these is Nucor, a steelmaker that submitted a mandatory “environmental product declaration” about the company’s sustainability practices. The company has 99.4 percent recycled steel and has supply lines to hydropower, making it one of the country’s biggest users of renewable energy.

By recycling scrap in electric arc furnaces, Nucor says its energy intensity is 74 percent lower than the global average and its greenhouse gas intensity is less than one-third the global average. The company added that it accounts for more than 25 percent of U.S. steel production but only 8 percent of the domestic steel industry’s greenhouse gas emissions.

Not all companies are willing to evolve in the face of climate change. Contractors and other companies now face the choice of revealing their environmental footprints — or resisting.

For years, U.S. companies have faced pressure to report their climate risks and emissions, but their record of disclosure has been mixed. That is expected to change when the Securities and Exchange Commission finalizes rules it proposed in March of last year.

One key question is how stringent the SEC will be, including whether it will require companies to estimate not just their direct climate consequences, but the indirect impacts of their products — such as the emissions produced when customers of an automaker drive its vehicles.

Companies as different as BlackRock and United Airlines, whose chief executives are aligned with the Biden administration on the need for greater climate action, are urging the SEC to scale back its ambitions on requiring disclosure of these Scope 3 emissions in annual and quarterly reports.

United, for instance, said that the commission’s final rule should not be “unduly burdensome and prescriptive.”

In an April 14 letter, the Chamber of Commerce cited the SEC’s own estimates to declare the new rule would be 2½ times more expensive than the disclosures companies currently make to the SEC, “raising the total cost burden associated with its related forms from a total of $3.9 billion to $10.2 billion.”

Possibly because of the corporate pushback, the SEC has yet to finalize the rule. But some analysts are still hopeful that strong disclosure requirements will eventually emerge.

“Behind the scenes, we’ve heard that the SEC is quite a strong advocate of getting something done,” said Sorkin, the co-founder and chief executive of Jupiter.

Sustainability advocates say that strong SEC disclosure rules will help inform smarter investment decisions and will aid certain companies by making investors more confident that their money is going to business practices that will not be foiled by climate change or regulations aimed at reducing climate emissions.

For these reasons, climate advocates are growing impatient. On March 5, 50 Democratic lawmakers said the rule “has already been delayed enough — and after that long delay, [the] SEC would be failing its duty to protect investors if it issues a watered-down rule.”

“What’s the problem with being more transparent?” said Richard Berner, professor of finance at the Leonard N. Stern School of Business at New York University. “Put simply: There are benefits to disclosure that help investors. It is part of the SEC’s mandate to protect investors and consumers.”

SEC supporters also note that many U.S.-based companies operate in the European Union, which has its own more demanding requirements on disclosing climate risks and impacts on emissions. Even if those U.S.-based companies have small footprints in Europe, they will be compelled to share details of their entire operations.

“Europe is way ahead,” Jackson said.

Read more from Steven Mufson of The Washington Post:  https://www.washingtonpost.com/climate-environment/2023/05/02/biden-corporate-climate-change-disclosure/.