Speaker 1: Today on Parts Pavilion, we're heading to Wall Street. But
Speaker 1: we're not talking about game stop. No, No, We're talking
Speaker 1: about climate change and how Wall Street investors may soon
Speaker 1: be getting a lot more data on climate change from
Speaker 1: the companies they invest in. Hello, and welcome to Parts
Speaker 1: per Billion, the environmental podcast from Bloomberg Law. As always,
Speaker 1: I'm your host, David Schultz. You know, one of the
Speaker 1: best parts of working at Bloomberg Law is you get
Speaker 1: free access to the Bloomberg Terminal, a computer portal that
Speaker 1: contains a dizzying amount of financial and investment data. And
Speaker 1: when I first logged onto the terminal, what amazed me
Speaker 1: most was just how much data public companies are required
Speaker 1: to disclose. It's a lot, but some people are saying
Speaker 1: it's not enough. For example, companies have to report their
Speaker 1: profits and losses, of course, but they don't necessarily need
Speaker 1: to report how they're affecting the environment and climate change
Speaker 1: in particular. However, that might be about to change, and
Speaker 1: sooner than you might think. More compulsory climate change reporting
Speaker 1: is something that's squarely within the Democratic parties platform, and
Speaker 1: we now have a Democrat in the White House and
Speaker 1: by extension, in charge of these Securities and Exchange Commission.
Speaker 1: Andrew Ramonis covers the SEC for Bloomberg Law, and he
Speaker 1: says there could be some action on this issue even
Speaker 1: before Biden's nomine to lead the commission gets confirmed. I
Speaker 1: spoke with him about this earlier today, and he started
Speaker 1: by explaining exactly what companies are currently required at as
Speaker 1: close as far as reporting requirements go, the SEC technically
Speaker 1: doesn't have any that are just for climate change. Companies
Speaker 1: are required to make disclosures about climate change if it's
Speaker 1: important to their business, like anything else. But the SEC
Speaker 1: put out guidance in twenty ten that was intended to
Speaker 1: clarify what companies should have already been doing making disclosures
Speaker 1: about the effects of climate related legislation, regulation, and other
Speaker 1: developments concerning climate change. Yeah, if material to their business, right.
Speaker 1: I think you had something in your story about how
Speaker 1: Exxon was, you know, found out it was going to
Speaker 1: be increasing its carbon emissions by seventeen percent over a
Speaker 1: certain period and they didn't need to disclose that, right.
Speaker 1: I mean, that's that's an example of something that companies
Speaker 1: don't need to disclose, correct, not right now? And the
Speaker 1: way that you know that was found out was. Our
Speaker 1: colleagues over at Bloomberg News received some documents about this,
Speaker 1: and yeah, it was not included in publicly release documents.
Speaker 1: So let's talk about how this could change in the future,
Speaker 1: the near future and the medium term future. You know,
Speaker 1: I get the sense that that the Biden administration really
Speaker 1: does want to tackle this issue. You know, what could
Speaker 1: change if the Biden administration was able to get everything
Speaker 1: done that it wants to get done. Would what would change? Well,
Speaker 1: it's still too early to say with certainty what the
Speaker 1: SEC could make companies disclose in this area. Right now,
Speaker 1: the SEC is led by an acting chair and the
Speaker 1: permanent chair is still waiting for confirmation in the Senate.
Speaker 1: But you know, some have looked to recommendations from the
Speaker 1: Financial Stability Boards Task Force on Climate Related Financial Disclosures,
Speaker 1: which has several suggestions for making disclosures related to managing
Speaker 1: and measuring climate risk. And this includes urging companies to
Speaker 1: explain their costs of transitioning to a lower carbon economy. So,
Speaker 1: in other words, the company would have to say, like,
Speaker 1: we're you know, we're assuming that there are going to
Speaker 1: be new climate regulations, and here are the costs that
Speaker 1: we're going to incur to adapt to that. That's something
Speaker 1: that companies would have to disclose possibly, and you know,
Speaker 1: well it's kind of a wait and see, we'll see
Speaker 1: what happens. There's been no formal proposal yet from the
Speaker 1: SEC on this, just sort of suggestions for what some
Speaker 1: groups and investors would like to see. Well, the really
Speaker 1: interesting thing that you reported recently is that, you know,
Speaker 1: there could be changes happening in the very immediate term
Speaker 1: before the Biden administration's nominee, Gary Gensler even gets confirmed.
Speaker 1: What could the acting chair of the SEC do on
Speaker 1: this given that she, you know, isn't doesn't have the
Speaker 1: full powers of a confirmed chairman right right now, the
Speaker 1: SEC is led by is a commission of that has
Speaker 1: a two to two split, so it's equally divide between
Speaker 1: Republicans and Democrats. So any rule making in this area
Speaker 1: would have to wait until a third Democrat joins, which
Speaker 1: would be Genstler if he's confirmed. But even though there's
Speaker 1: the split, that makes rule making difficult because Republicans are
Speaker 1: unlikely to support this type of rule making. They're you know,
Speaker 1: there is some power that the acting chair, Alison Lee has,
Speaker 1: and one thing she does have her disposal is this
Speaker 1: twenty ten climate disclosure guidance, And what she could do
Speaker 1: is she could invoke this guidance to emphasize the importance
Speaker 1: of companies providing better information to investors. It's not as
Speaker 1: powerful of a tool for her as rules with reporting
Speaker 1: requirements would be, but she can direct her agency staff
Speaker 1: to take a closer look at company filings with an
Speaker 1: eye towards the guidance. This could lead to new staff
Speaker 1: level disclosure guidance, telling companies what the agency is looking
Speaker 1: for in their filings. Individual companies also could get questions
Speaker 1: and letters from the SEC about their climate disclosures, which
Speaker 1: would you could lead to more disclosures when these companies
Speaker 1: respond to any questions. So this is a guidance that's
Speaker 1: been on the books more or less since twenty ten.
Speaker 1: It sounds like during the Trump administration it's just kind
Speaker 1: of been collecting dust. And it sounds like because it
Speaker 1: is has already been on the books, this is something
Speaker 1: that could be dusted off immediately. Yes, it is correct,
Speaker 1: and actually it's been gathering dust even before then. Towards
Speaker 1: the end of the Obama administration, the SEC chair Mary
Speaker 1: Joe White did not didn't use it at least in
Speaker 1: my research, there was no direct references to its use.
Speaker 1: There might have been some questions and comments sent to
Speaker 1: companies about it that were more, you know, indirectly referencing
Speaker 1: climate and things like that. But regardless, me and others
Speaker 1: have all found generally that it decreases declined significantly. Since
Speaker 1: twenty fourteen, things were pretty quiet and on that front.
Speaker 1: So let's talk about Gensler. First off, when do you
Speaker 1: expect him to be confirmed, because, as you mentioned, he
Speaker 1: would be the sort of fifth tie breaking vote and
Speaker 1: that means that the SEC could do a lot more
Speaker 1: once he's on board. Yes, that's correct. I expect the
Speaker 1: Senate to confirm Gensler within the next few months. But
Speaker 1: you know, I guess anything can happen in the Senate.
Speaker 1: You never never really know, even if it's under democratic control.
Speaker 1: But you know, the Senate Banking Committee has yet to
Speaker 1: schedule a hearing on his nomination, which would be sort
Speaker 1: of the first step towards getting confirmed. And Jay Clain,
Speaker 1: who was Trump's SEC chairman, was nominated in January twenty seventeen,
Speaker 1: like Gensler was nominated in January twenty twenty one, but
Speaker 1: it took until May of that year until Clain took office,
Speaker 1: so it could even have things move relatively smoothly, could
Speaker 1: still take you know, later the spring or even into
Speaker 1: the summer before he comes to office. And yeah, as
Speaker 1: we all know, the Senate kind of has its hands
Speaker 1: full at the moment with the second impeachment trial of
Speaker 1: the former president. So I guess we could be talking
Speaker 1: about maybe mid spring even late spring before Gensler you know,
Speaker 1: gets in and is able to enact you know, what
Speaker 1: he wants to do and what the Biden administration wants
Speaker 1: to do. But let's take a big step back here
Speaker 1: and talk about you know, the next four years. You know,
Speaker 1: I get the sense that the Biden administration could be
Speaker 1: really really good for ESG investors, which is something that
Speaker 1: you report on a lot. First off, can you explain
Speaker 1: what ESG investing is and about how the Biden administration
Speaker 1: could impact this sure ESG it stands for Environmental, social
Speaker 1: and Governments and it's become quite the buzzword lately. How
Speaker 1: a company handles ESG issues can help investors decide whether
Speaker 1: the company is being a good corporate cism, if it's
Speaker 1: important to their investment strategies and the environmental and social
Speaker 1: parts of ESG, including climate change matters or getting the
Speaker 1: most attention from ESG investors who have been calling on
Speaker 1: the SEC to make companies disclose more information in these areas.
Speaker 1: So just to make sure understands these are investors who
Speaker 1: are saying, I want to invest money, but only in
Speaker 1: companies that are you know, have a good record on
Speaker 1: the environment or social issues or corporate governance issues. Correct,
Speaker 1: those are the type of investors we're talking about. God,
Speaker 1: I see. So, yeah, tell me about how the Biden
Speaker 1: administration could impact this, because it sounds like there could
Speaker 1: be some big changes ahead for ESG investing. Yeah. Now,
Speaker 1: now these investors are hoping under at the agency under
Speaker 1: Democrat control, it could could make these types of disclosures reality,
Speaker 1: you know, but it will take time. At the SEC,
Speaker 1: the role making process, even with a Democrat majority is
Speaker 1: slow going. Usually it begins with a proposal and then
Speaker 1: it takes several months of comments, comment period and other
Speaker 1: tweaks and then you get a rule making and it
Speaker 1: can take it can take year, or it could take
Speaker 1: years to get something. And then, of course, as listeners
Speaker 1: to this podcast know very well from the EPA and
Speaker 1: Interior Department of Interior rule making. After it comes out,
Speaker 1: then you've got the lawsuits and then you have the
Speaker 1: years and years of litigation. So okay, so I'm getting
Speaker 1: the sense it's not going to happen, you know, very quickly. No,
Speaker 1: not overnight, but once Genzler comes aboard, they can start
Speaker 1: moving into that direction more quickly than they would under
Speaker 1: a divided equally divided commission. And is are we just
Speaker 1: talking about information disclosure or would there be other actions
Speaker 1: the SEC could take over the next four ish years
Speaker 1: or so that would benefit ESG investors. It would primarily
Speaker 1: be you know, the SEC likes to describe itself as
Speaker 1: a disclosure agency and that's its main role, is trying
Speaker 1: to worry about issues on disclosure. You know, once once
Speaker 1: things are once there are new rules on disclosure, if
Speaker 1: companies aren't following those rules, then the SEC has enforcement
Speaker 1: power and could be bringing actions against violators in that area.
Speaker 1: But absent actual rules, it's hard to bring enforcement cases
Speaker 1: over lack of disclosure unless it's you know something you know,
Speaker 1: if you have, you know, a huge oil spill and
Speaker 1: you don't report it in your filings, then that would
Speaker 1: be definitely material regardless of the climate disclosures and if
Speaker 1: you didn't report that then the SEC would probably go
Speaker 1: after you. But you know, SORR if absent some things
Speaker 1: like that, you know, I got to wait on enforcement.
Speaker 1: That's it for today's episode of Parts Pavilion. If you
Speaker 1: want more environmental news, check us out on Twitter. We
Speaker 1: use the handle at environment just that environment, and I'm
Speaker 1: of course at David B. Schultz if you want to
Speaker 1: disclose anything to me. Today's Parts Pavilion episode was produced
Speaker 1: by myself and Josh Block. Parts Pavilion was created by
Speaker 1: Jessica Coombs and Rachel Dagel. The music for today's episode
Speaker 1: is a message by Jazarre and running by Enrico Pierra
Speaker 1: Nunci and Silvano Jimenti. They were used under a Creative
Speaker 1: Commons license. Thank you so much for listening. Hi, I'm
Speaker 1: Laura Carlson, and I'm dropping into your feed to tell
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