The ESG backlash in the US is inspiring a lot of column inches, but behind the scenes, progress from regulators and financial institutions is being made.
Speaking to ESG Clarity at COP27 in Sharm El-Sheikh, Kristina Wyatt, deputy general counsel and senior vice-president of global regulatory climate disclosure at carbon management and accounting platform Persefoni, said momentum from the industry is unlikely to be curtailed by negative sentiment or administration changes.
“The backlash has been unfortunate, but it’s also been somewhat overblown,” she said.
“We do see significant momentum from the financial sector that’s driving decarbonization and we still have net-zero commitments by many financial institutions.”
Wyatt, who joined Persefoni in March this year from the Securities and Exchange Commission (SEC), where she served as senior counsel for climate and ESG to the director of the division of corporation finance, added the pending SEC regulations that will require reporting of greenhouse gas emissions and climate-related risks and opportunities shows the direction of travel is still clear.
Persefoni recently hired another ex-SEC employee, Emily Pierce, who was assistant director in the Office of International Affairs at the regulator.
The direction may be clear, but the speed appears less so, and Wyatt references SEC chair Gary Gensler’s recent comment that the rules are not imminent.
“The SEC would always like to be able to move more quickly, but it takes some time in order to be able to implement rules,” Wyatt added.
“Probably a little bit more [slowly on climate rules] because there were so many comment letters that were submitted in response to the proposals, there was something like more than 15,000 comment letters.
“So there’s quite a lot of work for the SEC to do in digesting all of those and coming up with the right sort of balance in the final regulations.”
While that is ongoing the US has also in the midst of mid-term elections. Is Wyatt concerned political shifts could change the game?
“My hope and expectation is that the rules will be in place and companies will be either already reporting or will be preparing to report in accordance with the rules,” Wyatt said.
“In a real sense, companies are under increasing pressure to report on climate whether form their customers, investors, bankers, or other stakeholders. The regulatory landscape is important but is not the only factor driving this. As such, you wouldn’t expect a major shift even if there were a new administration.”
Attestation and advice
In March, the SEC called for Scope 1 and 2 emissions reports to be independently assured by a third party.
Under the proposed rule, big companies will have to start reporting Scope 1 and 2 emissions data by 2024, with “limited assurance” from a third-party verifier beginning in 2025 and a higher standard of “reasonable assurance” by 2027. Smaller companies have a slightly extended timeline for compliance.
It has been largely welcomed by the ESG investment industry, although the devil will be in the detail.
“Attestation is critical and the approach is fairly reasonable,” Wyatt told ESG Clarity.
“It’s not all at once and it’s not all scopes of emissions, but that reliability and that second pair of eyes on the data is so critical.”
She said having that attestation is important so that investors can rely on the data, trust what companies are saying and so investors are able to accurately compare companies.
Having herself moved to a climate data company, Wyatt’s belief in the importance of accurate data is clear, and her advice to advisers is to start there.
“Understand the underlying data of the companies you’re investing in and understand what you’re telling your own investors,” she said.
“And make sure that message is backed up by solid data that’s reliable, consistent and auditable.”