The Securities and Exchange Commission (SEC) wants publicly listed companies in the U.S. to disclose their material climate-related risks and the measures they are taking to manage those risks. APG supports the introduction of these new, and somewhat controversial, climate reporting rules. To reinforce this stance, APG, along with several American pension funds and investors, signed an amicus brief to the U.S. Court of Appeals for the Eighth Circuit in August.
There is a significant gap between the U.S. and its global peers in mandating climate-related financial disclosures. Where Europe has the Corporate Sustainability Reporting Directive (CSRD), the U.S. has largely left it to companies to decide what to share with investors. In March the SEC adopted a final climate disclosure rule that would have narrowed that gap.
“The new rules require public companies to disclose scopes 1 and 2 carbon emissions, transition plans including reduction targets, and any risks of physical climate-related hazards. Climate disclosures are critical for making informed investment and voting decisions”, explains Senior Responsible Investment Manager Simone Andrews of APG Asset Management US, Inc..
Investors join forces
The SEC faced immediate legal challenges to the landmark rule and has paused enforcement until the lawsuits can be resolved. As a vocal advocate for standard climate and sustainability reporting across the global markets, APG signed onto an investor-led ‘friend of the court’ brief. “As institutional investors, we know firsthand the challenges with navigating the largely voluntary climate reporting landscape in the U.S.”, says Responsible Investment Credit Analyst Lee Anne Hagel of APG Asset Management US, Inc.. “Filing this amicus brief gives us an opportunity to voice our support for the rule and explain its significance to our investment and voting processes.”
The other signatories are primarily American pension funds and investors. “As European asset manager that invests heavily in publicly listed U.S. companies, we find it important to join like-minded U.S. investors in this show of support. As the climate debate has increasingly moved to the courts, we must meet the moment”, says Simone.
Clear goal, long-term horizon
Lee Anne is concerned that the continued rise of anti-ESG sentiment in the U.S. has derailed understanding of the rule. “It’s been mischaracterized as climate legislation. At its core, the SEC climate disclosure rule is about corporate disclosure of factual, financially material information.”
A final decision will likely be years in the making. This case is being heard by the Eighth Circuit. Depending on the outcome of that court’s ruling, the decision could be appealed and go all the way to the Supreme Cout of the United States.
APG’s climate policy remains ambitious
Despite the regulatory headwinds and setbacks, APG’s climate policy remains ambitious in its purpose. “We actually go further than the mandates of the SEC rules”, Simone points out, “we expect companies to not only disclose emissions but to also demonstrate that their climate targets remain within the 1.5 ºC global warming limitation and reduce greenhouse gas emissions.”
Even so APG views the SEC rules as a positive step forward to ensuring clear, consistent, and comparable climate reporting from companies. Lee Anne: “That’s crucial for us to manage transition risks in client portfolios, engage effectively with portfolio companies, and identify investment opportunities.”