WHEN: Today, Monday, March 21, 2022
WHERE: CNBC’s “Power Lunch”
Following is the unofficial transcript of a CNBC exclusive interview with SEC Chair Gary Gensler on CNBC’s “Power Lunch” (M-F, 2PM-3PM ET) today, Monday, March 21st. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
TYLER MATHISEN: Welcome back to “Power Lunch,” everybody. The SEC moving closer now to enacting a set of rules to make companies disclose metrics related to how their firms contribute to climate change. Bob Pisani has a “Power Lunch” exclusive with the Chair of the SEC, Gary Gensler. Bob?
BOB PISANI: Thanks very much, Tyler. Mr. Gensler, thanks very much for joining, joining us. I appreciate it. You have proposed, a proposed rule that would require US listed companies to disclose climate related risks. I’m wondering if you can flesh this out a little bit for us. What exactly do you want corporate America to disclose?
GARY GENSLER: Well Bob, we’ve had this regime for 90 years where investors get to decide on what risks they want to take, companies make full and fair disclosure and increasingly companies are disclosing climate risk. And so we’re stepping in to help bring some consistency, some standardization with regard to those disclosures, some qualitative disclosures around strategy, governance and the like. But also yes, as Tyler said earlier, some metrics as well with regard to their greenhouse gas emissions and the financial effects on their current financials.
PISANI: Now, you mentioned greenhouse gas emissions, but who is vetting these numbers? If I’m a corporation, and say I have XYZ greenhouse gas emissions, who’s vetting them? Is there going to be an independent audit agency? Will they be held accountable, or will the company be held accountable if their numbers are not accurate?
GENSLER: Well again, we just put a proposal out to comment today. We need the public to weigh in and I invite all of your listening public to weigh in and give us feedback but on your question there, companies are ready. A vast number of companies are disclosing some things around their greenhouse gas emissions. But we have put a proposal out that would include over some phased in period over a number of years that outside independent experts would attest to the numbers, basically as you call it, audit the numbers.
PISANI: Yeah. Now you said before that climate change is material information for investors to make informed decisions. This word material is a very important word. It says legal connotations. Why is climate disclosure material for investors? Can you explain that?
GENSLER: Well, so what we have is hundreds if not thousands of companies already making disclosures and yet those disclosures are fragmented. They’re sort of different. They’re following different standards. We have a role to bring in some standardization, some consistency and comparability. Materiality is a really important concept our Supreme Court has defined and it’s about investors deciding whether to buy or sell a stock, make a vote on a proxy statement with regard to the future economics and climate risk today is being taken into consideration by literally over $100 trillion of investor assets under management, are taking in climate risk today about the future because what is the price of a stock? It’s, it’s, it’s a price today about the future performance of a company.
KELLY EVANS: Gary, it’s Kelly here. We appreciate your time. Your predecessor has a pretty stark warning in the Wall Street Journal today about the path that you’re going down where he worries that it would draw legal challenges, that it’s a matter that should be left up to Congress, that perhaps no single agency should be responsible for setting climate policy, which requires so much more input than just a single agency’s determinations. What are, what’s your response to those criticisms, and to those who feel that this puts at risk your central task of safeguarding capital allocation?
GENSLER: Kelly, Kelly, I’m sorry, I don’t accept the premise. We at the SEC are just narrowly focused on disclosure and investor protection on one side and capital formation on the other side, efficiency of the market in the middle. So this is trying to bring some standardization, some consistency to what’s already happening. We had our first environmental disclosures in the 1970s. We have a climate risk guidance from 2010. So this is trying to build upon that and bring some consistency in this one area. This is so investors are better informed, more consistently informed. And so companies on the other side also get the benefit of consistently sort of knowing how to kind of have that conversation with investors. This is not about with all respect which some people have said a broader bit about climate policy. It’s it’s it’s about disclosure, and time-tested rules of materiality around disclosure.
EVANS: To that point, including Scope 3 emissions is somewhat controversial because they’re, they can be difficult to determine it means not just your direct emissions, not just your indirect emissions, but anything involved in the process of you getting the products that you sell and delivering those to consumers. And it sounds like there’s a little bit of confusion about who would be required to disclose Scope 3 emissions, if there would be any kind of legal follow up to them, you know, following or not following through on those disclosures and what it would mean to give their kind of best effort guess at what those disclosures might even be. Can you provide any clarity on that?
GENSLER: Well you’re right to mention that for the last five or six years, companies have been disclosing greenhouse gas emissions about their own company and maybe their energy they’re purchasing like electricity so called Scope 1 and Scope 2. Those are now more readily available, but we took a tailored approach as to as you called it the upstream or downstream greenhouse gas emissions, so called Scope 3, because that’s not as evolved at this point in time. And what we said is companies would only need to disclose that if the company determines its material in the context of that company and their investors or if they say they’re managing towards a target, including that Scope 3. But in addition, we said small companies didn’t have to do this. We phase it in over more time and we also place what’s called a safe harbor around those disclosures for the issuers.
PISANI: Mr. Chair, you had over 600 comment letters submitted under an earlier request for comments from your fellow Commissioner Allison Herren Lee. Can you give us a sense of what corporate America was saying too, this is an awful lot of letters to submit. What are their concerns, is what Kelly brought up a legitimate concern that seems to when I talk to corporate leaders a big concern about SEC overreach and just the constant demand for more disclosure on this and many, many other issues? What is corporate America saying to you already about these proposals?
GENSLER: What’s interesting so yes, my my fellow Commissioner Allison Lee, who is acting Chair at the time asked the public to weigh in and we got these this robust comment file last year. We’ve also reached out and talked to a lot of corporate executives and issuers and investors and what we found is overwhelmingly about three quarters of the comments in that comment file last summer were supportive of the SEC taking a step forward for mandatory climate risk disclosures. But the details matter, and it’s really helpful if individual issuers, individual companies and investors weigh in, give us feedback building upon this what I would say is a 90-year tradition of full and fair disclosure but on each of these areas to weigh in. What some issuers have said to us is, look, I don’t have a target plan. I don’t have a transition plan. Well, the proposal we made today says you have to disclose a target or a transition plan only if you have it. So we’re not weighing in as to whether somebody should have a, you know, scenario analyses and the like. But if you’re using them to disclose to your owners. Look, we own these companies, investors that watch this show own the companies and they want to understand today as they’re investing, buying and selling and voting, the risks that are here today about future transition, or physical risks.
PISANI: You have a very ambitious regulatory agenda. You and I have talked about this before. 50 proposals on the regulatory list, cybersecurity, corporate board diversity, short sale disclosure, pay versus performance. This is an awful ambitious agenda. Can you give us a sense of what your priorities are for 2022? Is there something you really think is important to get to get through this year?
GENSLER: Bob, I’d like to use other words than the the adjective you decided. I think this is about promoting efficient markets, our three part mission, investors, issuers and the fair, orderly efficient markets in the middle and so I hope that we together with my fellow Commissioners can help keep promoting that and in the markets, whether it’s the stock markets that you cover or the Treasury markets, the fixed income markets to drive greater efficiency, or in the private funds space, the private fund space that probably on average takes about $300 billion a year or more from issuers and investors to manage the money, manage about $18 trillion of assets. If we can help promote greater efficiency in the markets along with these disclosure rules that help promote greater efficiency in the markets, I think our capital markets are better. I think issuers on the one side benefit with a lower cost of capital and investors get a better turn, turn in the markets.
PISANI: Gary Gensler, SEC Chairman. Thank you very much for joining us, Mr. Chairman. We very much appreciate it.
GENSLER: Thank you Bob, Tyler and Kelly.
