As U.S. regulators mull tougher climate disclosure requirements from industry, Big Oil is pushing back, cautioning officials against overstepping their jurisdiction.

The Securities and Exchange Commission (SEC) on June 14 published a flood of submissions from investors, industry and stakeholders in response to a call for input on how it might update the way it regulates climate-related disclosures.

The letters underscored a sharp contrast between industry positions on new disclosure requirements, with Silicon Valley fully on board and Big Oil much more skeptical.

While perhaps not surprising, the correspondence offers some insight into the fossil fuel industry’s position as regulators look to beef up requirements on climate filings under the Biden administration. It suggests a fight is brewing and that Big Oil is preparing to dig in.

Industry wants regulators to stay within their remit

Many of the oil industry’s objections to additional climate disclosures claimed new requirements risked reaching beyond what is currently considered “material” to investors.

Katie Tubb, senior policy analyst for energy and environment at conservative Washington think-tank the Heritage Foundation, laid out the industry position succinctly:

“The SEC should not use climate change or executive order as occasions to significantly alter or expand the definition of ‘material’ information that must be disclosed,” she said. “To use climate change as a proxy for deeper philosophical economic change is well outside the mission of the SEC.”

A 1976 Supreme Court ruling defined information as material “if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.”

The industry argues certain climate disclosures would not meet this bar—a sentiment echoed by the submissions of a host of oil companies and industry groups.

“Any effort by the SEC that seeks to impose a major new climate disclosure regime but deviates from the well-established grounding in materiality could raise significant concern about whether the SEC has strayed far beyond its authority to regulate the securities markets,” wrote Frank Macchiarola, senior vice-president for policy, economics and regulatory affairs at the American Petroleum Institute, Big Oil’s powerful Washington lobby group.

“In addition, a significantly expanded disclosure requirement beyond the well-established doctrine of materiality could raise serious First Amendment issues under recent precedent applying strict scrutiny to content-based laws compelling speech.”

An undue burden on producers

The industry’s objections also homed in on the idea that the burden imposed by far-reaching new requirements would be simply unmanageable for many in the industry—especially if they were imposed rapidly.

The API said:

“The potential cost of compliance with a new reporting regime, that could go well beyond what may already be reported to other government agencies or voluntarily to stakeholders, can be dramatic even when considered against experiences with other financial reporting rules.” 

Small and midsized companies, the API said, would lack the capability and resources to comply with sweeping new requirements.

ConocoPhillips Co. advocated for basing any new regime on existing frameworks and standards in order to minimize the new disclosure and compliance burdens. Chevron Corp. called for a “phased approach” to any new requirements, imposing them gradually in order that companies can adjust.

For its part, the API suggested new regulations should at least initially focus just on scope 1 emissions (those directly attributable to a company’s operations) rather than scope 2 or scope 3 (those from its power suppliers and customers, respectively).

“Some issuers, within the industry and in other industries, may be providing shareholders GHG emissions information beyond their direct, or scope 1, emissions. This presents additional complexities and data gathering that currently may not be adoptable by all issuers,” the API said in its submission to the SEC.

The lobby group also called for liability protection for any plans companies might publish on cutting emissions in case “unplanned events could alter the trajectory for reaching planned reductions.”

The industry submissions come against a backdrop of the regulator signaling it will be taking a tougher line on climate under the Biden administration. Chevron recently lost an investor vote requiring it to increase its scope 3 emissions disclosures, after the motion was forced on to the ballot by the SEC.

The regulator looks set to increasingly flex its muscles as part of this process after the president last month used an executive order to direct the Financial Stability Oversight Council—of which the SEC is a part—to come up with a plan to address climate risk.

The letters published on June 14 suggest Big Oil is ready to push back.

This article is an excerpt of Energy Source, a twice-weekly energy newsletter from the Financial Times. 

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