SEC Climate Disclosure Rule: Let the Lawsuits (and the Decarbonization) Begin

The U.S. Securities and Exchange Commission (SEC) published its long-awaited climate disclosure rule earlier this month, compelling public companies to make data on their greenhouse gas emissions available to investors. Public officials allied with fossil energy interests have already filed at least two lawsuits to block it. But the Joe Biden administration is forging ahead with a $6 billion program to decarbonize cement, steel and other energy-intensive industries, regardless of what happens in court.

Here come the lawsuits

The new SEC rules build on existing requirements for climate-related disclosures made by public companies.

“The final rules reflect the commission’s efforts to respond to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules,” according to the SEC.

Some environmental organizations were critical of the final rulemaking, and fossil energy stakeholders also weighed in. That includes a petition for review joined by 10 Republican-led states, filed in the U.S. Court of the Appeals for the 11th Circuit, which handles cases from Florida, Alabama and Georgia.

The lawsuit is somewhat vague as to details, though Utility Dive is among the news organizations noting that opponents argue the SEC overstepped its authority.

“Petitioners will show that the final rule exceeds the agency’s statutory authority and otherwise is arbitrary, capricious, an abuse of discretion, and not in accordance with law,” the lawsuit reads. “Petitioners thus ask that this court declare unlawful and vacate the commission’s final action.”

The 11th Circuit took no immediate action, but the 5th Circuit, which handles cases from Mississippi, Louisiana and Texas, issued an administrative stay in response to a request filed by the firms Liberty Energy and Nomad Proppant Services. Administrative stays halt further legal proceedings until a ruling is made on the request.

The Republican-led states of Louisiana and Mississippi were also a part of a 5th Circuit lawsuit that was filed along with the U.S. Chamber of Commerce, the Longview Chamber of Commerce and two Texas-based stakeholder organizations, the Texas Association of Business and the Texas Alliance of Energy.

Fossil energy stakeholders are not the only ones unhappy with the new rules. The environmental organization Sierra Club and the Sierra Club Foundation filed a lawsuit in the U.S. Court of Appeals accusing the SEC of not going far enough to protect investors.

“Through legal recourse, we aim to hold the SEC accountable to its mission: protect and empower the rights of every single investor,” Dan Chu, executive director of the Sierra Club Foundation, said in a statement, noting that the Foundation is itself an investor.

A $6 billion boost for decarbonization

The new rule was not scheduled to go into effect until 60 days after it was announced on March 6, so the 5th Circuit administrative stay will not have an immediate impact on the timeline. Still, the clock is ticking, and public companies in the U.S. are already being advised to prepare for implementation.

“Companies need to continue to evolve governance and disclosure of climate-related risks and performance not only to prepare for SEC requirements, but also to find new sources of competitive advantage and to realize opportunities while meeting evolving stakeholder expectations in a rapidly changing world,” Joe Sczurko, president of earth and environment at the leading consultancy WSP USA, wrote for TriplePundit.  

That chore just got a little easier for the dozens of leading U.S. companies that qualified for funding through a new $6 billion decarbonization program organized under the U.S. Department of Energy. The funds are allocated from the 2021 Bipartisan Infrastructure Law and the 2022 Inflation Reduction Act.

The sprawling 20-state, 33-project program is aimed at applying a broad slate of carbon-reducing technologies to industries that are difficult to decarbonize through ordinary electrification alone.

“The projects will focus on the highest emitting industries where decarbonization technologies will have the greatest impact, including aluminum and other metals, cement and concrete, chemicals and refining, iron and steel, and more,” according to a statement from the department.

The program is also expected to create tens of thousands of new jobs, with a focus on community benefits and labor rights. “Nearly 80 percent of the projects are located in a disadvantaged community,” according to the Department of Energy.

Food and beverage firms can lead the way

The funding program showcases new technologies, with the expectation that the qualifying projects will model best practices for adoption throughout their industries.

Three of the top food and beverage brands in the U.S. are represented in the Department of Energy’s list of highest-emitting industries. They were selected based partly on their ability to showcase technologies that lend themselves to widespread adoption and high consumer visibility.

“These projects can increase consumer awareness around embodied emissions by decarbonizing products that Americans consume every day like ice cream, ketchup and BBQ sauce,” according to the department. 

One of the awardees is the consumer goods company Unilever, which plans to deploy up to $20.9 million in federal funding to replace gas boilers at several locations with electric boilers and heat pumps. The system also involves recovering waste heat.

“Along with reduced emissions, this project has an extremely high replicability potential and will create a model that could lead to further decarbonization throughout the food and beverage sector where approximately 50 percent of processing emissions are from low temperature heating,” according to the Department of Energy.

Similarly, the food company Kraft Heinz was awarded up to $170.9 million for a multi-state project that includes renewable energy and energy storage elements integrated with heat pumps, electric heaters, electric boilers and biogas boilers.

The U.S. branch of the beverage company Diageo won the third award in the food and beverage category. It was awarded up to $75 million to demonstrate how on-site renewable energy can be paired with new large-scale, long-duration energy storage technology to replace gas-fired heating systems. The battery, developed by the firm Rondo Energy, is designed to provide continuous energy from wind and solar resources — even when the wind is not blowing and the sun is not shining.

As for the new SEC rule, it will be difficult to stuff the genie back in the bottle. The Department of Energy program is all but certain to foster climate-based competition throughout the U.S. food and beverage industry. Once the new systems are up and running, household brands under the Unilever, Kraft Heinz, and Diageo umbrellas are going to set a high bar for others to meet, regardless of what happens in court.