Big banks support SEC climate disclosure plan, small banks dread it

WASHINGTON — A regulator’s proposal to require climate risk disclosures for all public companies has divided large and small banks.

Representatives for large banks told the Securities and Exchange Commission in comment letters that they support informing investors about how financial institutions contribute to and are impacted by climate change, but they called for a safe harbor limiting legal liability for unintentionally misleading disclosures.

Community bankers, on the other hand, don’t want the SEC to mandate climate disclosures.

“Mandatory disclosure requirements for all SEC filers are unnecessary and would only lead to excessive regulatory burdens on smaller publicly held companies,” Christopher Cole, executive vice president and regulatory counsel at the Independent Community Bankers of America, said in a letter to SEC Chair Gary Gensler.

The SEC's request for information is part of broader attempts under the Biden administration is attempting to use the country’s regulatory apparatus to force corporations to take stock of activities, such as lending to oil and gas companies, that contribute to climate change.

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Analyts say larger banks, some which have have taken steps to curb lending to fossil fuel companies, are better prepared to handle a climate disclosure requirement because many have already alerted their investors about climate risks voluntarily. But community banks likely haven’t faced the same pressure to be proactive.

“The largest banks have already started reporting some of this data in large part because of their size and their internal capacity to dedicate manpower to it,” said Isaac Boltansky, director of policy research at Compass Point Research & Trading. “Community banks just haven't spent the time and are concerned regarding the costs.”

The American Bankers Association and the Bank Policy Institute both indicated in their comment letters that investors are increasingly calling on institutions to provide information related to their activities that contribute to climate change as well as their exposure to climate change.

“Investor demand for environmental, social and governance-related information, and specifically information related to climate-related financial risk, has grown dramatically over the past few years, and the [SEC's request for information] is one in a growing array of national and global responses to the concerns expressed over climate risk,” said Michael Gullette, senior vice president of tax and accounting at the American Bankers Association. “Appropriate disclosures from all business sectors will be key to understanding and addressing climate risk.”

Lauren Anderson, senior vice president and associate general counsel at the Bank Policy Institute, which represents the largest banks, noted that the big banks have already starting disclosing climate-related information in response to investors.

“Many banking organizations have already taken several important climate-related actions, including publishing extensive disclosures publicly via their websites or through voluntary reports,” Anderson said. “These actions are part of an increasing trend of registrants voluntarily disclosing climate information to investors, and we expect this trend would continue in response to investor interest in this information and registrants’ desire to meet investor demand even absent SEC action on climate disclosures.”

Ed Mills, a policy analyst at Raymond James, said large banks are likely “trying to shape the proposal versus trying to prevent the proposal.”

“As an organization, your job is to kind of make sure there's an adequate transition period … and shape it in a way that is most livable for your members,” Mills said.

Both the ABA and the Bank Policy Institute said that the SEC should include a safe harbor in its proposal to protect banks from lawsuits if they unintentionally disclose misleading climate-related information while trying to comply with the new regime.

“While their climate risk reporting systems may not yet be adequately developed to meet the requirements for financial filings with the SEC, SEC registrants should, nonetheless, be encouraged to disclose the climate risk management processes and the climate-related financial data they use,” Gullette said. “Therefore, SEC registrants should be provided a safe harbor for their disclosures of climate risks and climate-related financial data that limits their liability for unintentionally misleading statements, amounts or estimates.”

Anderson said that banks and other public companies would likely face costly lawsuits without a safe harbor.

“Absent a safe harbor, registrants are likely to face opportunistic lawsuits over disclosures that would be, at least in the short term, particularly uncertain,” Anderson said.

But small banks are arguing that institutions should only voluntarily disclosure climate-related information to investors if that information is material.

In the ICBA's letter, Cole suggested that the SEC is stepping outside of its lane by focusing on climate change risk.

“The SEC should not politicize the agency and jeopardize its independence by taking a position on climate change and requiring annual disclosures of climate risks by all SEC filers,” he said.

The industry comments come as Republican lawmakers have opposed regulators' efforts to assess climate change risks in the financial system.

“We do not believe that any further securities regulations to specifically address global warming are necessary or appropriate, and will only serve to further discourage firms from becoming publicly traded, thus denying significant investment opportunities to retail investors,” all 12 Republicans on the Senate Banking Committee, led by Sen. Pat Toomey, R-Pa., said in a letter to Gensler and Allison Herren Lee, a Democratic member of the SEC.