Between new climate change rules from Washington and increased environmental activism from shareholders, we have reasons to be hopeful on Earth Day 2022.
The modern environmental movement was born when we first celebrated Earth Day in 1970, following a massive oil spill off the coast of Santa Barbara, California. Today the stakes are even larger. The United Nations Intergovernmental Panel on Climate Change (IPCC) made headlines in August 2021 upon the release of its sixth report, highlighting that the impacts of climate change are already more widespread and severe than anticipated. UN secretary-general António Guterres summarized the report’s findings as nothing less than a “code red for humanity.”
The impetus for the world to tackle climate change has never been so immediate and clear. It’s far from easy to influence the course of the climate, as decades of lackluster public policy prove. But we’ve seen ample evidence that governments, regulators, and investors have been listening to calls for action.
How are US policy makers fighting climate change?
US president Joe Biden marked his first week in office in 2020 by having the US officially rejoin the Paris Agreement, an international climate change treaty first adopted in 2015. This year Biden set a new national goal to reduce emissions by at least 50% by 2030 from 2005 levels, formalizing the plan as the US nationally determined contribution under the Paris Agreement. His administration also included important environmental provisions in the 2021 Infrastructure Investment and Jobs Act, requiring that all new passenger vehicles sold after 2035 produce zero emissions, with an interim goal of half or more of new passenger vehicles sold in 2030 to produce zero emissions. In his March 2022 State of the Union address, Biden touted the economic promise of climate strategies that promote clean energy, electric vehicles, and energy efficiency. These actions make it clear that the Biden administration wants to be known for accelerating US government progress against climate change.
Outside the White House, the Department of Labor (DOL) released a proposed rule in October 2021 clarifying that climate change and other environmental, social, and governance (ESG) factors are often material, which means fiduciaries should in many cases consider them in their investment decisions. The DOL is currently seeking public comment on the broader question of how to protect retirement savings and pensions from climate risks. While the DOL is still in the exploratory phase of these reforms, we expect more decisive actions to take place in the coming year.
But it’s not just the executive branch creating climate tailwinds. Regulators have made headway of their own following a May 2021 executive order that directed federal agencies to assess and mitigate climate-related financial risks. The Securities and Exchange Commission proposed in March 2022 to require all publicly listed companies in the US to disclose Scope 1 (which companies produce directly) and Scope 2 (which are produced for companies to consume) greenhouse gas (GHG) emissions. They’re also requiring certain companies to disclose Scope 3 (which companies’ supply chains and users produce) emissions, although these disclosures aren’t mandatory across the board. The SEC has also proposed to require companies to disclose how their boards and management oversee climate-related risks and opportunities, as well as details of climate-related transition plans and internal carbon pricing information. The SEC is looking for public comments on their proposal, but we don’t expect material changes to this draft 505-page rule.