In the USA, S.E.C. requirements for ESG reporting are now becoming mandatory
But, lobbying has meant that these are lagging behind ESRS. Large US companies are therefore looking to the ESRS
Republican Tim Scott complains: “Last time I checked, the S.E.C. was a securities regulator that doesn’t employ climate scientists”. The statement makes it clear how a lobby in the USA is fighting against the introduction of sustainability reporting obligations for companies. Nevertheless, the S.E.C. has now adopted binding and irreversible ESG reporting requirements. This is good news for the global fight against climate change, as the contribution of US companies will improve. However, the ESRS are even more relevant for US companies in Europe, as they also apply to them.
Investors demand binding ESG reporting requirements from the S.E.C.
Two years ago, the S.E.C. proposed the introduction of binding ESG reporting standards for listed companies. This was mainly driven by investor demands for reliable information on sustainable investments. Common practice at the time was for companies to decide for themselves what to report on, a “random potpourri” for the S.E.C. New reporting requirements have now been approved, to the delight of S.E.C. chairman Gary Gensler: “Today’s rules improve the consistency, comparability and reliability of disclosures.”
Political resistance in the USA: fossil fuel producers and the Republican Party campaign against new reporting standards
However, the standards have been weakened compared to the original S.E.C. proposal, the result of an extensive lobbying campaign against binding ESG reporting standards. Republican party politicians, fossil fuel producers and farmers in particular fought against comprehensive climate rules. Cynthia Hanawalt of Columbia Law School notes, “The resistance we’ve seen is largely due to the fact that we have a large fossil fuel industry and lobby in the United States.”
US stock exchanges are also moving towards mandatory ESG reporting
The new S.E.C. requirements stipulate that companies must report on their greenhouse gas emissions as well as on business risks arising from external climate change. Compared to the original S.E.C. proposals, however, lobby resistance has resulted in a weakening: companies now only have to report on directly caused greenhouse gas emissions and no longer on the entire value chain. They can also define their own material topics and thousands of smaller companies are exempt from the requirements. In addition, companies no longer have to report on the climate expertise of their board members. As a result, some financial companies have already withdrawn their own climate commitments. Former S.E.C. commissioner Allison Herren Lee therefore concludes: “Thanks to corporate lobbying, disclosure of the very real financial risks of climate change has fallen victim to the culture war.”
Summary
This is good news for global action on climate change: Following the EU’s lead, the S.E.C. in the U.S. has also adopted mandatory ESG reporting requirements for companies. However, in North America, a lobby consisting of the Republican Party, fossil fuel producers and farmers has succeeded in weakening the requirements. Large US companies operating in Europe must nevertheless report comprehensively on their ESG activities. This is because the ESRS also apply to large companies from the USA and Asia that operate in Europe.