WASHINGTON — Banking groups asked the Securities and Exchange Commission to significantly scale back its climate risk disclosure proposal, arguing the requirements would be onerous for the industry and could conflict with burgeoning efforts by bank regulators.
The comment period on the SEC’s roughly
The Bank Policy Institute and the Financial Services Forum urged the SEC to narrow the proposal’s scope, and to let any guidance by bank regulators preempt rules written by the SEC. Banks already disclose some climate-related data, the groups said, and requirements should hew closer to the kinds of data that banks have already built up infrastructure to collect and distribute.
Bank regulators, including the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp., are already developing climate principles and guidance that could overlap with the SEC’s requirements, the groups said.
“Given the extensive work that is underway by the prudential regulators, any climate change disclosure regime applicable to banking organizations should recognize the supervisory objectives and early stage of these efforts and not front-run the prudential process,” the Bank Policy Institute said in its letter.
The SEC’s proposal, unveiled in March, would require public companies, including large banks, to develop disclosures for a broad spectrum of carbon emissions and other environmental impacts. It represents one of the Biden administration’s most significant regulatory efforts to rein in climate emissions, and has generally drawn praise from environmental groups.
But the two big-bank trade groups gave the proposal a much more downbeat assessment this week. Specifically, they asked the SEC to significantly curtail any “scenario analysis” requirements, arguing that bank regulators will likely soon add them, and saying that complying with the SEC’s proposal would likely require banks to disclose sensitive details related to those exercises.
“In particular for financial institutions, detailed disclosure of the assumptions, inputs and outputs of scenario analysis exercises are likely to be proprietary business information and potentially confidential supervisory information,” the Financial Services Forum wrote.
The bank groups also asked the SEC to reconsider its proposed requirement on the disclosure of “Scope 3” emissions, which stem from business-related assets not owned or controlled by firms. For banks, that could mean requiring the collection of climate data for all the companies they invest in.
The Bank Policy Institute called the Scope 3 requirement “overly broad,” saying that many banks already voluntarily provide Scope 3 emissions data where possible in their sustainability reports.
“Rather than redefining the securities laws and violating long-standing legal and market concepts, the SEC should encourage Scope 3 emissions disclosures outside of the SEC reporting documents,” the institute said in its letter.
It added: “Moving in that direction would encourage more robust climate risk disclosures at an appropriate pace as the quality and availability of information increases. If the SEC retains the Scope 3 emissions disclosure requirements, the SEC should significantly narrow the requirements, including by tailoring them to registrants’ material climate commitments and goals, which have primarily focused on high-emissions sectors.”
The Financial Services Forum warned that Scope 3 requirements could drive business away from large banks and into the private credit market.
“The Scope 3 emissions disclosure requirement could also have unintended consequences that are detrimental to capital formation because public financial institutions will need to collect emissions information from customers in order to comply with the required disclosures, which could result in those customers seeking capital from private companies not subject to these new rules,” the Financial Services Forum letter wrote in its letter.
A new Securities and Exchange Commission proposal would require public companies to report climate-related risks across their value chain. That could be especially difficult if it means banks have to account for their borrowers' emissions.
For their part, some climate advocates have argued that the SEC proposal’s treatment of Scope 3 emissions
The SEC proposal also drew pushback this week from a group of 131 House Republicans. In a letter to SEC Chair Gary Gensler, they called on the agency to abandon the rulemaking immediately.
“Congress did not establish the SEC to set climate policy nor to be the final arbiter of businesses' strategies to combat climate change, which is what these rules will do,” the GOP lawmakers wrote in the letter, which was published Friday. “We call on the SEC to rescind the proposed rules immediately.”
Led by the ranking members of the House Financial Services Committee and House Energy and Commerce Committee — Reps. Patrick McHenry of North Carolina and Cathy McMorris Rodgers of Washington — the letter was signed by a wide swath of GOP lawmakers, including Reps. Ann Wagner of Missouri,, Frank Lucas of Oklahoma, Steve Scalise of Louisiana, Liz Cheney of Wyoming, Lauren Boebert of Colorado and Elise Stefanik of New York.
“It is Congress' job to set our environmental policy, not the job of unelected regulators,” the lawmakers wrote. “The SEC should focus on its core mission-protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation rather than a far-left social agenda.”
