Republican Control Of House Could Delay, Weaken New Climate Disclosure Rules

With Republicans now projected to control the U.S. House of Representatives, attention has shifted to their ability to conduct oversight over the executive branch, and at least one rule-maker affecting commercial real estate is likely to be in the crosshairs.

The Securities and Exchange Commission's proposed climate disclosure rule, a draft of which was released in March, is likely to see enhanced scrutiny from House Republicans. That grilling alone may be enough to delay or materially alter the rules themselves, Andrew Vollmer, a former deputy general counsel for the SEC, told Bisnow.

The rules would require publicly traded firms to track their direct emissions beginning in fiscal year 2023, and to begin reporting those emissions in 2024. Certain corporations would also be required to begin tracking and reporting indirect emissions a year later, which include emissions from tenants and outside contractors.

This indirect form of emissions has led to the most backlash from major industry groups like the Real Estate Roundtable and Nareit, who were among many commercial real estate players that submitted comments to the SEC on the proposed rules this summer.

“Now that Republicans will have a majority in the House next Congress, House oversight committees are highly likely to hold hearings about the SEC’s proposed climate-change disclosure rules," Vollmer said in emailed comments. "Republicans will want Chair [Gary] Gensler to appear as a witness and will be critical of the SEC’s proposal on both legal and policy grounds."

"Strong opposition in the House to the SEC’s proposed climate-change disclosure rules or other proposals on ESG issues is likely to add to the reasons that final climate-change disclosure rules are delayed,” he added. “It could lead the Democratic commissioners to curtail the more intrusive parts of the proposed rules."

In May, Republicans sent a letter to Gensler strongly denouncing the move to include carbon emissions and exposure to climate risk in publicly traded corporations’ routine financial disclosures, calling it “an overly broad expansion of the SEC’s authority [that] contravenes the mission of the agency.”

Republican Rep. James Comer, who signed the letter and is ranking member of the House Oversight and Reform Committee, didn't respond to a request for comment on his plans for oversight of the SEC’s proposed rules in the next Congress.

But Republicans weren't shy about their intentions in the leadup to the midterm elections: Utah Rep. Chris Stewart told SPGlobal in September that Republicans may attach a provision to the government spending bill defunding the climate disclosure rule, and could go as far as a government shutdown to defend the move.

Since that initial criticism, though, the SEC has gone relatively quiet, surprising observers like Billy Grayson, executive vice president of centers and initiatives at the Urban Land Institute, who expected a final version of the climate-disclosure rules to be out by now.

"I was hopeful that the SEC's guidance would be out by now. I'm not sure why it's taking so long," Grayson said. "I think the SEC law is going to face legal challenges from a number of folks anyway, regardless of who's in Congress."

The proposal took on a political sheen from the start, with Commissioner Hester Peirce, a Trump appointee, saying "we are not the Securities and Environment Commission." 

Nevertheless, some of the largest investors in commercial real estate have praised the move as a helpful way to standardize what can be confusing or misleading sustainability commitments made by publicly traded REITs.

"Understanding a company's emission profile, including that of its value chain, is one element that helps us assess its exposure to climate-related risks," Norges Bank said in its SEC comments. 

The broader world of ESG investing may be moving forward regardless of the swirling winds of American politics, said Sara Neff, head of sustainability at Lendlease Americas.

Neff said investors are continuing to pursue opportunities that contain a significant environmental and social commitment because they believe it's good business, not necessarily because they're being compelled to by government intervention, at least for the moment.

"Since the business case for ESG is so strong, the market should push past any legislative obstacles. The reverse is true, however, as the government could help accelerate this trend," Neff said. "For example, if the SEC were to codify their proposed mandate for climate-related disclosures, more companies would make ESG a priority in order to maintain a competitive edge."

The move by Republicans could also hamper efforts by nonprofits like As You Sow, a shareholder advocacy group that publicly backs international standards for emissions and climate risk disclosure. The nonprofit is one of many environmental organizations arguing that the SEC’s proposed rules would bring the United States in line with European and global markets.

"Politics should be separate from markets," As You Sow President Danielle Fugere told Inside Climate News on Nov. 7. "The world is transitioning towards a greener economy, and markets are adjusting to that. It is absurd for lawmakers to think that they’re going to put a stop to that progress. It would be detrimental to U.S. businesses."

Grayson, who spoke with Bisnow from the COP27 climate conference in Egypt, said attendees were discussing the midterm elections "only indirectly," but mostly as part of broader conversations about global policy strategies to drive carbon reduction.

He said despite the noise made by Republicans on limiting ESG investing, the global investment world is moving in that direction anyway.

“Global capital has decided that decarbonizing and a path to net-zero is going to be a key cornerstone of how they drive their investment strategy going forward,” Grayson said. “The momentum globally is towards a lower cost of capital for investments that are sustainable.”

Jarred Schenke contributed reporting for this story.

CORRECTION, DEC. 1, 5 P.M. ET: A previous version of this article misstated Billy Grayson's title. This story has been updated.