The SEC is seeking greater transparency on companies' climate change actions.

The SEC seeks greater information on companies' actions regarding climate change.

On Monday, SEC Commissioners will propose rules to improve disclosures about climate-related risks.

The SEC, led by Chair Gary Gensler, is considering over 50 proposed rules as part of its ambitious regulatory agenda.

However, climate disclosure rules are likely to be particularly controversial.

Gensler stated in a July 2021 speech that investors are increasingly seeking climate risk disclosures from companies whose stock they own or may purchase. He emphasized that investors require consistent, comparable, and decision-useful disclosures to make informed investment decisions.

Based on Gensler's previous speeches, the SEC's proposed rules are likely to be published late Monday morning.

The U.S. lacks clear guidelines on what corporations must disclose to investors regarding climate risk. Gensler has previously emphasized the need for consistent and comparable climate disclosures.

The annual report (Form 10-K) requires that the information be made visible to investors for them to make informed investment decisions.

Gensler has previously stated that quantitative disclosures may include information related to greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals. The SEC will also likely require disclosure of climate risks that are "material" to investors, such as risks posed by hurricanes, floods, or droughts. Qualitative disclosures may include how the company's leadership manages climate-related risks and opportunities and how these factors influence the company's strategy.

Gensler has previously pointed out that companies often make "net zero" claims about their greenhouse gas emissions without providing any supporting evidence.

Gensler has criticized investment funds that claim to be "green," "sustainable," or "low-carbon" but are unclear about the criteria they use to define themselves. He wants fund managers to disclose the criteria and data they use to create these funds.

Expect push-back

The move to reduce emissions to net-zero is likely to face opposition from many businesses, who fear the new disclosure requirements from the SEC on climate change and other topics will be burdensome.

Kenneth E. Bentsen, Jr., president and CEO of SIFMA, stated that the industry group believes any ESG disclosure rule should provide both customized disclosures and comparable quantitative information among registrants, while minimizing compliance costs and ensuring a flexible disclosure system that can adapt to changing circumstances.

Many in Congress are also worried about regulatory overreach.

U.S. Congressman Andy Barr (R-KY), a senior member of the House Financial Services Committee, stated that the SEC's mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, not to reduce carbon emissions or solve climate change.

The SEC's involvement in environmental policy debates, such as climate change, despite lacking expertise, will politicize the agency and diminish its credibility by prioritizing non-financial factors over investor interests.

This is only the start of the process

If the SEC's proposed rules are approved, they will be the initial step in the process.

A public comment period will follow after a new rule is proposed, which lasts either 30 days from publication in the Federal Register or 60 days after issuance, whichever is longer.

The SEC can respond to comments, request additional comments, or propose a final rule, which can then be voted on and adopted.

In February, Amy Lynch, president of FrontLine Compliance and a former SEC compliance official, stated that reaching the final vote is not always straightforward.

The agreement of the SEC commissioners is necessary for the implementation of the rule, which can be a politically charged process. The crucial factor is whether the proposal is supported by the majority.

On Monday at 2:15 PM, Gary Gensler, SEC Chair, will discuss the proposed climate disclosure rules on CNBC's "Power Lunch."