Juicing the corporate climate push

Presented by Bank of America:

Mar 22, 2022 View in browser   By Lorraine Woellert and Debra Kahn Presented by THE BIG IDEA Securities and Exchange Commission Chair Gary Gensler on Monday unveiled proposed rules for corporate disclosure of climate risks. | (Evelyn Hockstein-Pool/Getty Images) IT'S HAPPENING — If all goes as planned, companies by next year will be required to disclose how climate change is affecting their bottom lines, and what they're doing about it. The Securities and Exchange Commission, one of the nation's most powerful financial regulators, on Monday published a proposal that would deliver a major policy win for President Joe Biden, whose climate agenda has been mired in congressional partisanship and overshadowed by economic and geopolitical crises. The rule would generate detailed information on how corporations, financial services firms and other businesses are being affected by global warming. It would require executives to explain how they're coping with extreme weather, supply chain disruptions and other climate-related upheavals. "This is a core bargain Congress laid out in the 1930s," SEC Chair Gary Gensler said at Monday's meeting. "Investors get to decide which risks to take as long as public companies provide full and fair disclosure and are truthful in those disclosures." The long-awaited draft will spend months in the meat grinder while companies, shareholders, and environmental groups weigh in. While smarter people than we dig in, here are our three top takes. The SEC isn't an environmental regulator. Yes, this rule is important. By setting standards for disclosure, the SEC will speed the corporate sprint to decarbonization and root out greenwashers. But the agency won't — and can't — require companies to cut emissions. Scope 3, Scope 3, Scope 3. That's one thing, not three. Companies would have to tell people about the greenhouse gases emitted through operations and energy use — known as scope 1 and scope 2 emissions. Then there's the more complicated scope 3. These are indirect emissions generated by a company's suppliers and customers. Think of an automaker measuring the carbon footprint of your trip to the grocery store in one of its SUVs. Scope 3 can be difficult to measure and impossible for a company to control. After hearing from business groups, the SEC included safe harbors, exemptions and a long phase-in for scope 3 reporting. Progressives aren't happy. They say the draft language gives companies a big out. What kind of material is this? No, not upholstery swatches. Materiality is an accounting and legal concept that says, in essence, that companies have to inform shareholders when something is going to help or hurt the bottom line. It's already the law of the land for SEC disclosures, but the climate rule seems to introduce some new wrinkles. The U.S. Chamber of Commerce complains about disclosure overload and companies pressed to gather immaterial information at the expense of more meaningful data. Some shareholder advocates complain that the SEC defines materiality through the eye of just one beholder — the companies themselves. The issues might sound intractable, but they're not. The SEC has been working on this for a full year and Gensler spent hours listening to stakeholders. With no time to waste, Gensler issued a middle-ground draft right out of the gate, which might prevent big revisions later, "They know they don't have enough time to re-propose it," Ty Gellasch, a fellow at the Global Financial Markets Center at Duke University Law School, told our colleague Kate Davidson. "I think the idea was to propose what they expect to adopt, or very close to it, and that way they don't have to worry about the litigation risk of having the final rule be significantly different from the proposal." We'll keep you posted. Lorraine and Zack Colman have more details here.   A message from Bank of America: Women spend 200 million hours a day globally to get water, but access to capital for infrastructure can change that. Matt Damon and Gary White are combining practical solutions, relentless optimism, and storytelling to help create global access to clean water. In Bank of America's, That Made All the Difference episode, they discuss scaling these initiatives to help 40 million individuals, particularly women, buy back their time and agency, and enhance their income.   YOU TELL US Team Sustainability is editor Greg Mott, deputy editor Debra Kahn, reporters Lorraine Woellert and Catherine Boudreau, and digital producer Jordan Wolman. Reach them at gmott@politico.com, dkahn@politico.com, lwoellert@politico.com, cboudreau@politico.com and jwolman@politico.com. Thanks to Zack Colman, Jordan Wolman and Jael Holzman, Corbin Hiar and Thomas Frank of POLITICO's E&E News for chipping in. Want more? Don't we all. Sign up for the Long Game. Four days a week and still free!   SUBSCRIBE TO NATIONAL SECURITY DAILY : Keep up with the latest critical developments from Ukraine and across Europe in our daily newsletter, National Security Daily. The Russian invasion of Ukraine could disrupt the established world order and result in a refugee crisis, increased cyberattacks, rising energy costs and additional disruption to global supply chains. Go inside the top national security and foreign-policymaking shops for insight on the global threats faced by the U.S. and its allies and what actions world leaders are taking to address them. Subscribe today.     BUILDING BLOCKS Companies want to mine underwater manganese deposits such as these for nickel, cobalt and other valuable minerals. | Photo Courtesy of NOAA Ocean Exploration UNDER THE SEA — The world is about to begin negotiations on governing seabed mining in international waters — a potential source of minerals for EVs and batteries. But the U.S. won't get a say, POLITICO's Jordan Wolman reports. U.N.-backed talks in Jamaica this week will seek to hammer out rules for countries and companies that want to mine the world's oceans for copper, manganese, cobalt, nickel and other minerals. Demand is projected to rise exponentially as electric vehicles and battery storage for renewable energy take off. The U.S. is in jeopardy of being set adrift because it hasn't ratified the U.N. Convention on the Law of the Sea, a requirement to be a member of the International Seabed Authority. (We've been a holdout since 1982.) The U.S. will be unable to vote on the rules, and the U.S. won't be allowed to sponsor companies to compete for contracts. So what's a treaty holdout to do? One idea is to focus on domestic production and make friends with countries that have stuff we need. "Think about a conflict with China over Taiwan, where we stop buying semiconductors and stop buying rare-earth elements from China. That will be a disaster," said Duncan Wood, a vice president at the Wilson Center, a nonpartisan think tank. "This is now blatantly a matter of national security." Seabeds are off limits for some big users of rare earths anyway. Google, BMW, Samsung SDI, AB Volvo Group and other companies are party to a World Wildlife Fund moratorium on seabed mineral use. But some domestic companies are still trying to find a way in. Lockheed Martin has backing from the U.K. to explore in international waters. And the defense giant just asked NOAA to extend its exploration permits between Mexico and Hawaii. Even if Lockheed gets the extension, it can't actually do any exploring because the U.S. isn't a party to the U.N. seabed treaty, a fact Jael Holzman reports for POLITICO's E&E News. SHAREHOLDER SCOREBOARD DOMINOS — Virginia-based utility Dominion Energy will face a shareholder resolution at its May meeting that asks it to respond "to the risk of stranded assets of planned natural gas based infrastructure and assets as the global response to climate change intensifies," Corbin Hiar reports for POLITICO's E&E News. Dominion had tried to block the resolution by environmental activist Freda Cathcart, arguing to the SEC that "it has been substantially implemented by the company" through other climate change-related disclosures. The SEC posted its rejection last week. Cathcart's bid could win support, one expert said. "The time is ripe for shareholder resolutions to gain traction on the issue of stranded assets both from the economic perspective and the climate change perspective," said Cynthia Clark, a professor of management at Bentley University. "I'd give it a better than fair chance to succeed." And it's not the only climate-related resolution on Dominion's agenda: There's another one asking the company to adopt medium-term targets for Scope 3 emissions. Dominion has vowed to remove more greenhouse gases from the atmosphere than it emits by 2050.   DON'T MISS POLITICO'S INAUGURAL HEALTH CARE SUMMIT ON 3/31: Join POLITICO for a discussion with health care providers, policymakers, federal regulators, patient representatives, and industry leaders to better understand the latest policy and industry solutions in place as we enter year three of the pandemic. Panelists will discuss the latest proposals to overcome long-standing health care challenges in the U.S., such as expanding access to care, affordability, and prescription drug prices. REGISTER HERE.     WASHINGTON WATCH EQUITY EARMARKS — Congressional earmarks for climate adaptation grants in the fiscal 2022 spending plan that Biden signed last week could interfere with FEMA's commitment to helping disadvantaged communities, Thomas Frank reports for POLITICO's E&E News. Lawmakers directed FEMA to give some $154 million to some of the richest and whitest communities in their districts. Rep. Seth Moulton (D-Mass.) got $2.25 million for Newburyport, a city of 18,000 on Massachusetts' exclusive North Shore, to rebuild a coastal retaining wall. Rep. Vern Buchanan (R-Fla.) got $350,000 for Longboat Key, a town of 7,500 that has a median household income of $108,000 and is 95 percent white, to elevate a flood-prone roadway. The money is part of a $1 billion FEMA program that revised its grantmaking process last year after criticism that it mainly benefited affluent coastal areas. It now gives points to projects that benefit disadvantaged communities, and is one of the first federal programs to implement a Biden administrative initiative to direct at least 40 percent of climate and energy investment benefits to disadvantaged communities. The earmarks won't necessarily hurt that push, but they mean BRIC "is not a competitive program anymore," said Carlos Martín, a disaster policy expert at the Brookings Institution.   A message from Bank of America:   WHAT WE'RE CLICKING — ESG funds are due for a correction thanks to the over-exuberant sprinkling of "fairy dust" on all sorts of investments, says Paul Clemens-Hunt, who coined the term "ESG." — Disney workers are planning a walkout after the company bungled its response to a don't-say-gay bill that would govern student counseling in Florida schools. — Pop rocks: An MIT-backed company is raising money to tap super-hot geothermal energy by drilling miles into the Earth's crust. It plans to dig the first two such holes, which have been linked to earthquakes, "somewhere on the West Coast." Yes, you read that right.   A message from Bank of America: What if clean water could help women achieve true equality? Co-Founders Matt Damon and Gary White joined forces to create Water.org and WaterEquity, initiatives that have helped 40 million individuals, particularly women, buy back their time, agency, and enhance their income. "The poorest people in the world were paying more for water than the middle and upper class because they weren't connected to infrastructure. Millions upon millions of girls are missing school because they go and collect money from the family and the ripple effect is incalculable," said Damon. Learn about how these leaders are combining practical solutions, relentless optimism, and storytelling to help create global access to clean water in Bank of America's, That Made All the Difference episode.     Follow us on Twitter Catherine Boudreau @ceboudreau Debra Kahn @debra_kahn Greg Mott @gwmott Lorraine Woellert @Woellert Jordan Wolman @jordanwolman   Follow us

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