SEC Defers Finalized Rules on ESG Disclosures

The commission also found a technical glitch in its comment system, forcing the agency to reopen its comment period.

October 24, 2022

ALEXANDRIA, Va.—The Securities and Exchange Commission (SEC) will miss its deadline to finalize proposed rules that would require publicly traded companies to disclose their environmental, social and corporate governance (ESG) plans, reports Bloomberg Law.

The commission set an October deadline for final rules, but it still needs to review thousands of public comments from a Supreme Court ruling in West Virginia v. Environmental Protection Agency, which SEC Chair Gary Gensler said this month was “significant and meaningful.” The court ruled in June that agencies need clear permission from Congress to create regulations that have major economic or political effects.

The SEC also found a technical glitch in its comment system, forcing the agency to reopen its comment period earlier this month on the March climate proposal and other rules, including two proposed rules that would help mitigate misleading or deceptive claims by U.S. funds on their ESG qualifications and increase disclosure requirements for those funds.

“I can’t see how that process leads to the commission producing a final rule before the end of the year,” Evan Williams, senior director at the US Chamber of Commerce’s Center for Capital Markets Competitiveness, said last week.

Gensler has not set a timeline for finishing the climate regulations in recent public appearances, saying the commission needed to review thousands of comments.

“The volume of comments is the primary factor in the amount of time it will take to finalize the rule,” a source told Bloomberg Law.

In June, NACS submitted comments on the two rules proposed in June by the SEC. The proposed changes would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies and business development companies.

NACS has strong concerns about the proposal and the negative impacts it would have for its members with publicly traded equity and debt securities, as well as those that are entirely privately held and not subject to SEC regulation.

“The industry takes seriously its role in reducing carbon emissions and recognizes that structure and consistency in reporting are helpful goals,” said NACS in its letter. “In our view, however, the proposal exceeds the SEC’s statutory authority, conflicts with its mission, creates unwieldy economic burdens even on businesses entirely outside of its jurisdiction, and sets a precedent that would take securities regulation into a political sphere that would be harmful to the SEC and the future of regulation of the markets.”

The U.S. Small Business Administration (SBA) also filed comments on the two rules, encouraging the SEC to publish a Supplemental Initial Regulatory Flexibility Analysis and to reconsider the breadth of its Scope 3 GHG disclosure rules.

“We urge the SEC to further analyze the impact of the proposed rules on all impacted small entities and explore additional regulatory alternatives before proceeding to a final rule. This analysis should be published in a supplemental IRFA to provide small entities an opportunity to comment. Additionally, Advocacy recommends that the SEC reconsider the breadth of its Scope 3 emissions disclosure to ease the burden of the proposed rules on small, private businesses,” wrote the SBA in its comment letter.

The proposed amendments seek to categorize certain types of ESG strategies broadly and require advisers to provide more specific disclosures in fund prospectuses, annual reports and adviser brochures based on the ESG strategies they pursue.

In March, the SEC proposed rules that would require publicly traded companies to disclose their ESG plans. The proposed rules state that companies must show to investors how certain climate-related risks can affect their finances. Some companies also will need to disclose their emissions, which includes data from their suppliers and customers.

Learn about how convenience stores, specifically Parkland USA and Hightowers Petroleum, are approaching ESG initiatives and reporting in the NACS Magazine article “Crafting Your ESG Story” in the September issue.

Also, here’s how ESG impacts small operators in the industry.