ABA: Climate disclosure rule would lead to increased costs for smaller banks

The Securities and Exchange Commission’s proposed greenhouse gas emissions reporting rule could unintentionally result in increased costs and reporting burdens on small banks and their customers, the American Bankers Association said today. The SEC is drafting a rule that would require certain publicly traded companies to disclose their emissions to investors, including “Scope 3” emissions that are generated by third parties to the disclosing entity.

In comments to the House Financial Services Subcommittee on Oversight and Investigations, which held a hearing on the rule, ABA restated its many concerns about the proposal while noting that the Scope 3 emissions requirement could dramatically expand the number of financial institutions subject to the rule. Federal Home Loan Banks are SEC registrants, meaning that it is likely that any Scope 3 disclosure requirements will require them to obtain from their members detailed information on loans pledged as collateral or sold to the FHLBs, increasing costs to those members. “This potential to dramatically increase cost and reporting burdens on many small banks who are not SEC registrants and on the customers they serve, is a troubling and presumably unintended consequence of the financed emissions requirement,” ABA said.

ABA also noted that the additional costs of compliance will provide little benefit to investors, as the level of financed emissions has no relevance to the transition-related financial risk of the bank. “In fact, the measurement of financed emissions will merely be correlated to the size of the institution and the size of its commercial borrowers,” the association said. “Those large borrowers with high emissions are generally the most capable of transitioning to a low-carbon economy. Only when specific emissions targets have been committed to will financed emission disclosures have decision-usefulness.”