ABA Calls for Changes to SEC Climate Rules

In an open letter, the American Bankers Association (ABA) has called on the Financial Stability Oversight Council (FSOC) to ensure the US financial regulator applies the “reasonable investor standard of materiality to climate-related disclosure requirements”.

The ABA set out its concerns regarding the Securities and Exchange Commission’s proposed rules on climate disclosures for listed companies, which it published at the end of March.

It called on the FSOC to support the creation of a useful and operational climate disclosure framework, and for the SEC to dial back some its demands.

The FSOC should “apply the ‘reasonable investor’ standard of materiality to climate-related disclosure requirements”, the association said in its letter. According to the SEC, this reasonable investor standard asks that “if investors have timely, accurate, and complete financial and other information, they can make informed, rational investment decisions”.

The SEC has also called for all listed companies to disclose Scope 3 carbon emissions — those emanating from the use of its products or services. However, the ABA argued that the current inconsistency and inaccuracy of Scope 3 emissions data meant it could become difficult for investors to compare across portfolios.

Instead, the association called the SEC to only enforce Scope 3 disclosures where companies have promised to provide material data on this factor.

The ABA also stated that “climate-related disclosures are necessary to inform investor decisions, and they must be scalable to the size and complexity of the registrant, as well as the materiality of climate-related risks to its business”.

It added that “more extensive safe harbors and longer transition periods are needed to recognize the nascent state of climate-related financial risk management”.

Introducing these changes could support investors in making educated decisions due to increased disclosure and transparency in climate related products and services, the ABA said.