‘If you don’t disclose, you won’t get the support of international capital’: The backlash against the SEC’s new mandate is a mistake as China closes the gap on climate disclosures

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In early March, the US Securities and Exchange Commission (SEC) adopted new rules requiring US companies to release information on climate risks and greenhouse gas emissions. Already, the decision is facing legal challenges. Nineteen Republican-led states have done so he started two a suit overthrowing them completely as a violation of the authority of the organization.

These cases reflect the fierce public debate that has accompanied the drafting of these laws. Lost in this debate, is what is happening in China—our biggest competitor, and our biggest adversary in the battle to lead the low-cost economy.

In this battle, climate disclosure is one of the US’s competitive advantages. American companies prefer to provide the public with relevant and comprehensive information on climate-related issues Chinese companies. Financial markets rely on these disclosures to incorporate climate risk into their financial decisions. A soon research institutional investors found that nearly 80% consider climate risk disclosure to be as important as financial disclosure.

Investors appreciate the disclosure because weather is the company’s biggest risk to the economy as a whole. Climate-dependent units must handle extreme temperatures and seasonal events; climate change can cause a 6-18% decrease on global yields of major crops if farmers do not change their farming practices. Sectors like land and infrastructure are facing flood damage, which is expected to increase 26% in the US by 2050. Meanwhile, decarbonization processes in sectors such as energy, heavy industry, and agriculture affect all of their systems, affecting industries from technology to consumer goods.

Public disclosure, then, helps investors weather climate risks — and US companies provide better disclosure than Chinese companies. But Chinese officials are pushing to close the gap. Hong Kong already requires companies to disclose emissions. Starting in 2025however, it will require comprehensive climate disclosures—covering emissions data, climate risks, and other topics—that are consistent with international standards from the International Sustainability Standards Board (ISSB).

Hong Kong’s progress is expected; it is the gateway to Chinese markets for global investors. Of particular interest are the new proposals from China’s three largest markets, whose value is more than double that of Hong Kong. Laws provided and the mainland authorities in February will provide the requirements for the first weather report on the mainland.

The demand is part of efforts to revive the foreign currency it has had he has fallen amid China’s faltering economy and the rise of international business. Climate change disclosure may not change this, but it is important for investors around the world. As the chairman of China Securities Regulatory Commission Fang Xinghai he said frankly in April 2022, “If you do not disclose [on ESG]. . . you will not be supported by the capital of the nations.”

The above recommendations are closely related to the ISSB standards. They only work for the largest and most advanced companies in the world—which account for 60% of the market’s capital—and have no part in US and European regulations like authentic protocols for emissions data. But they are also stricter than the US in other areas. SEC standards, for example, allow businesses not to disclose their emissions if they don’t consider emissions a “commodity” for their purposes. China does not allow that it is not allowed.

China’s efforts strengthen its financial system to deal with the climate crisis and meet the real needs of businesses. This need is even stronger in the US Our market-driven financial system relies more on transparency and public disclosure than China’s state-run capital markets. Our corporate disclosures may be better, but they suffer from a lack of regulations that govern corporate disclosures. About two-thirds of US investors in a 2022 survey “Decision-making will be better informed if companies follow a single standard of ESG reporting.”

The SEC mandate provides such standards for climate change. They are not as strong as representatives would like. The Sierra Club has the defendant The SEC to re-establish the requirements of strict reports issued in its jurisdiction from February 2022 which is in line with the European ones.

But the Republican charges threaten all the essentials. Doing so would set us apart not only in China, but in the financial markets around the world. State regulators including European Union, Japan, Brazil, in the United Kingdom, Switzerland, Singapore, Australiaand new Zealand all those who want or have implemented climate disclosures based on ISSB standards.

Leading a low carbon economy requires building an economic system that can manage the risks and opportunities of climate change and energy transition. Regulators are pushing around the world to build the system—including in China. The role of the SEC helps the US to work. Overturning it can set us back.

Edmund Downie is a Ph.D. in the Science, Technology, and Environmental Policy program at the Princeton School of Public and International Affairs. Erica Downs, Ph.D., is a senior research fellow at the Center on Global Energy Policy, Columbia University’s School of International and Public Affairs. Yushan Lou is a research assistant at the Center on Global Energy Policy, Columbia University’s School of International and Public Affairs.

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