Thanks to the generosity of the Woodwell donor community, the second round of 2026 Fund for Climate Solutions (FCS) awardees has been announced. The FCS supports innovative, solutions-oriented climate science through a competitive, cross-disciplinary process. With more than $10 million raised to date, donor support has already fueled 88 research grants and leveraged millions of dollars in additional research grants since the program’s launch in 2018.
This most recent round of grants is supporting Woodwell experts in building policy engagement skills, improving land managers’ preparedness for future fire seasons, and updating carbon budgets based on the newest science.
Woodwell Policy Fellowship: A Pilot Program to Advance the Internal Science to Policy Pipeline
Lead: Laura Uttley
Since the Center’s founding by Dr. George Woodwell, our leadership, scientists, and researchers have engaged with local, state, federal, and international policymakers to facilitate the development of science-based policy solutions. This project will develop an internal Policy Fellowship pilot program to amplify Woodwell Climate’s science in decision-making and better position our scientists and researchers for engagement and advocacy opportunities. A cohort of five to ten science staff will collaborate with the Policy and Government Relations team through attending monthly webinars on federal and international processes, developing policy briefs relevant to their work, and participating in either COP32 or Woodwell’s 2027 DC fly-in. This Policy Fellowship will leverage the diverse backgrounds and experiences of Woodwell Climate scientists to ensure robust climate science is complemented with compelling narratives and public policy applications.
The 2024 Amazon fire crisis: A postmortem to advance proactive management
Lead: Dr. Manoela Machado
Despite 2024’s lower-than-average deforestation rates in the Brazilian Amazon, wildfires there reached record levels. For every hectare of forest lost to deforestation, 11 hectares were affected by wildfire—an unprecedented proportion. Leaders from Prevfogo (National Center for Prevention and Combat of Forest Fire) have called for scientific evidence that can help aggregate data on burned area, land tenure, agency mandates, and resource constraints in order to reinforce requests for increased budgetary support and avoid a repeat of the 2024 season during the anticipated 2026–2027 El Niño year. The project team will create maps of the 2024 fire crisis to support proactive preparedness for future fire seasons. These maps will identify where fire risk and occurrence, institutional responsibilities, and operational capacity may be misaligned, supporting proactive planning, improving coordination, and justifying targeted funding for agencies preparing for future fire crises.
Permafrost emissions and remaining carbon budgets under peak-and-decline pathways
Lead: Dr. Christina Schӓdel
The Intergovernmental Panel on Climate Change (IPCC) Seventh Assessment report (AR7) is underway, and a key priority of the report is examining overshoot pathways. Overshoot, or peak-and-decline pathways, describe climate scenarios where global temperatures temporarily exceed 1.5 or 2°C before declining as a result of mitigation actions (emissions reductions and carbon dioxide removal). This project will create the first synthesis of overshoot models of permafrost emissions, and calculate how including permafrost emissions impacts global carbon budgets. Using this model synthesis, the team will develop policy-relevant visualizations, conference presentations, and a peer-reviewed manuscript to inform IPCC AR7 and UN assessments of global progress on climate goals.
Forest carbon allocation decoupling under climate extremes: Implications for carbon budgets, forecasting and forest management
Lead: Kathleen Savage
When trees capture carbon from the atmosphere, they can store it aboveground in their trunks and branches, where it can persist for a long time, or belowground in their roots, where it can return to the atmosphere more quickly. Recent studies have shown that under extreme conditions like drought, trees shift to storing more of their carbon in their roots instead of in wood growth. However, current ecosystem models don’t reflect this allocation shift. This project will study long-term forest carbon data from Howland Research Forest in Maine to better understand carbon allocation changes, how they vary across management practices, and their implications for forest management and conservation goals. The team will host a two-day workshop to present their results to forestry managers, conservation organizations, and policymakers. They will also visit Washington, D.C. to deliver insights directly to federal policymakers.
At this summer’s Esri User Conference, the world’s largest geospatial technology conference, Woodwell Climate Research Center scientists Jackie Dean and Heidi Rodenhizer were recognized with top cartography awards for maps illustrating the challenges threatening those on the front lines of climate change and the beauty of a personal cycling journey through Norwegian landscapes. This is the fourth year in a row that Woodwell has won major awards at the Esri conference.
Rising Waters, Sinking Ground: Navigating Climate Threats for Community Relocation, by Jackie Dean, was a finalist for Outstanding Spatial Analysis. Across Alaska, warming temperatures are intensifying climate risks – thawing permafrost, erosion and flooding, catastrophic ground collapse, and increasingly frequent storms – that threaten the safety of Alaska Native communities like Nunapicuaq, forcing them to consider relocation as the only option to protect their villages. The map illustrates the effects of climate change and rapid warming, as well as the factors that influence considerations and efforts to relocate. It was developed in partnership with Nunapicuaq residents Morris Alexie, Woodwell’s Community Engagement Specialist, and Vincent Wassillie, Permafrost Pathways Liaison for Nunapicuaq, to support the community’s chosen site and identify more suitable, higher ground their community could safely and viably move to.
“It is incredibly important to build maps in collaboration with Indigenous communities on the front lines of the climate crisis right now, to share their reality and the intricacies and adversities that they are being faced with,” said Jackie Dean, research assistant at Woodwell Climate Research Center. “Without serious intervention, climate change will only continue to impact people, and thoughtful adaptation and resilience will be increasingly critical for communities across Alaska and the globe.”
Norway By Bicycle, by Heidi Rodenhizer, received the International Cartographic Association and International Mapping Industry Association (ICA-IMIA) Recognition of Excellence in Cartography award, and illustrates the expedition Heidi and her husband undertook once they could travel safely following the global COVID-19 pandemic. The map depicts the path that took them across deep-cut fjords lined with brightly colored houses, through the alpine tundra, over bright green islands, and to the summit of Galdhøpiggen, the highest mountain in Norway.
“The map allowed me to capture the data of three months of adventure on one page as a reminder of the stunning and highly varied landscapes and topography of Norway that both inspired and, at times, impeded our tour,” said Heidi Rodenhizer, research scientist at Woodwell Climate Research Center. “Now our trip and days of travel are memorialized visually, in a display that merges Norway’s spectacular scenery with the journey we took, and allows us to revisit and share the experience with others.”
“These maps show the range of impact and narrative work that cartography is able to provide, tracking critical data for scientists solving the problems of climate change and serving as vehicles for storytelling and amplifying important lived experiences,” said Greg Fiske, Director of Geospatial Technology at Woodwell. “We are excited to continue exploring our understanding of geospatial data and sharing these complex stories in an accessible manner.”
The Esri User Conference, held annually in San Diego, hosts over 20,000 geospatial professional attendees and hundreds of maps submitted for the gallery. Woodwell Climate has developed a noteworthy partnership with Esri, the industry leader in mapping software, and has attended the conference for decades. From art exhibits to scientific journal articles, Woodwell prioritizes cartography as a means to transform complex environmental data into clear, accessible visual stories that can reach broad audiences.
To learn more, view Rising Waters, Sinking Ground here and Norway By Bicycle here
New fire satellites offer hope for Amazon and other biomes, but local barriers remain
Record wildfires devastated South America in 2024, raging out of control in biomes where fire is a natural part of the ecosystem, but also entering rainforests that had never burned before. Driven by expanding industrial agriculture, an El Niño episode, and droughts worsened by global climate change, the thick smoke from the wildfires grounded flights, shuttered schools, and caused lasting health problems.
Woodwell Climate Research Center (Woodwell) appreciates the opportunity to comment on the proposed rule regarding the Organization, Functions, and Procedures; Public Notice and Comment for Standards, Criteria, and Guidance Applicable to Forest Service Programs. As a scientific research organization dedicated to conducting science for solutions at the nexus of climate, people, and nature, Woodwell consistently advocates for robust, science-informed, and transparent programs for long-lasting sustainability and the benefit of the public.
Introduction
Public participation in formulating land management policies and guidelines, including consultations with Indian Tribal governments, has been a feature of the U.S. Forest Service for more than 100 years, and is codified in the Forest and Rangeland Renewable Resources Planning Act of 1974, as amended (16 U.S.C. 1612(a)). Public participation in federal land management allows policies to be based on considerations of those most affected by the policies, and generally results in more effective land management decisions.
Currently, the Forest Service is obligated to notify the public and seek comments on changes related to “standards, criteria, and guidelines,” or more specifically, any rescissions or removals from the Forest Service Manual or any changes to the Forest Service Handbooks. Under the proposed rule, these requirements would be substantially narrowed. Implementation of these new rules would replace public participation with directives from political appointees having little knowledge of the scientific basis for land management decisions, threatening the many public benefits of public forests, including protection of wildlife habitat, recreation, water supplies, and mitigating climate change, among others.
Woodwell strongly recommends the rescission of this proposed rule as the scaling back of public engagement contradicts the interests of the American people and the principles of scientific integrity. However, Woodwell does support the revision of the overly complex Forest Service Directive System to increase flexibility for local land managers to make decisions based on unique ecological conditions and land-use history, and urges the Forest Service to review and propose appropriate changes to this system to streamline Forest Service operations.
Scientific objection to the scaling back of public engagement
Transparency is an underpinning of scientific integrity, as well as ethical public service. Without strong public engagement, forest management will be driven by partisan agendas and political appointees rather than the relevant and impacted constituencies and technical experts. In any sweeping action conducted by the Forest Service, it is imperative that the process be fully transparent to ensure quality and integrity for the American people. The solicitation of public comments on such actions offers a well-rounded pool of expertise to advise decisions, offering perspectives that may not have otherwise been considered. This openness to interdisciplinary discourse is a core principle of science and the management of public lands.
The large body of ongoing scientific research that takes place on Experimental Forests located within Forest Service lands is an important consideration. These long-term studies have informed management practices for decades based on continuous data collection following management treatments to assess how different approaches affect timber production, wildlife habitat, carbon stocks, and other forest values over time. For example, long-term research at the Hubbard Brook Experimental Forest nestled within the White Mountain National Forest in New Hampshire has yielded world-class research on the impacts of management practices on nutrient cycling that is the foundation of forest growth. Without public support, sustainable resource use on federal forest lands will be threatened and replaced with extractive practices like timber and mining that are favored by this Administration, without consideration of long-term benefits.
The critical role of forests in carbon sequestration
Nationwide, the Forest Service manages about 24 million acres of old growth and about 67 million acres of mature forest—nearly two-thirds of the total area of all forests managed by the agency. Mature and old-growth forests, with their much older and larger trees, hold more carbon. Mature and old-growth forests are also more resilient and adaptive in the face of disturbances such as wildfires, which makes them a high priority for environmental protection.
Since 2001, forest fire carbon emissions have increased by 60 percent. It is projected that by mid-century, wildfires in the northern region of North America would alone contribute to a cumulative net source of nearly 12 gigatonnes of carbon dioxide emissions into our atmosphere, further exacerbating temperatures and subsequent wildfire ignitions.
Impacts on climate resilience and economic risk
Rules are weighted by considering cost-benefit analyses. An analysis of short-term economic gain, without a clear analysis of the longer-term impacts on economics, human health, livelihoods, etc., weakens the argument against this rule. Actions such as the rescission of the 2001 Roadless Rule have already demonstrated the harm that increased logging and other commercial activities pose to protected forests, with the anthropogenic influences that increase under these conditions (such as population density, a human footprint index, and roadless extent in our forests) having significant statistical correlations to wildfire occurrence.
These harmful short-term approaches to forest management will have irreversible negative impacts on climate resilience, the economy, and public health. Forest ecosystems provide a plethora of economic co-benefits, including livelihoods, biodiversity, food, and air and water filtration, all of which are threatened by the exacerbation of wildfires and forest degradation due to climate change. Over the last 15 years, 15,000 deaths have been attributed to wildfire particulate matter. Further, Woodwell research has found that from 2006 to 2020, the economic burden linked to climate change-induced wildfire particulate matter alone accumulated to $160 billion. These repercussions will only be amplified under conditions of increased carbon emissions driven by deforestation. Woodwell strongly objects to the narrowing of the disclosure requirements in regard to Forest Service operations so that the public may continue to advocate, in their own self-interest, against irresponsible forest degradation.
Reforming the Forest Service Directive System
While Woodwell strongly objects to the scaling back of public engagement outlined under this proposed rule, Woodwell supports the reformation of the Forest Service Directive System. The current Directive System encoded in the Forest Service Manual and the Forest Service Handbooks is exceedingly complex and fails to adequately reflect the unique circumstances of land management history and ecological processes, especially considering climate change and effects on future forests. Reforming this outdated guidance by consulting the latest science, and without increasing the influence of short-term political considerations, would undoubtedly help ensure the long-term sustainability of the use of public forest resources for the wider public rather than the enrichment of a few businesses or wealthy individuals.
However, it is essential that the Directive System retain its importance as more than just advisory. The phrase “This proposed rule would redefine the Forest Service Handbooks as advisory and informational guidance that employees may deviate from without documenting a justification,” dangerously weakens the role of the Directive System and must be stricken from the final rule. A justification documenting the scientific basis of decisions as well as the concerns of the public must remain a requirement of forest and project planning. In addition, Woodwell strongly urges continued consultation and coordination with Indian Tribal governments.
Conclusion
The proposed rule to revise the procedures in regard to the standards, criteria, and guidance applicable to Forest Service Programs would eliminate effective public input to forest and project plans in favor of the heightened influence of short-term political agendas. In practice, this would significantly weaken the role of science in decision-making, ultimately threatening the long-term sustainability of federal forest resources. In order to protect public participation, as well as ensure scientific integrity of forest management decisions, Woodwell urges the Forest Service to significantly revise this proposed rule as follows:
- Restore the value of public participation to federal forest decision-making for policy and management to ensure sustainable benefits from public forests, including protection of wildlife habitat, recreation, water supplies, and mitigating climate change, among others.
- Strike the proposal to “redefine the Forest Service Handbooks as advisory and informational guidance that employees may deviate from without documenting a justification” and eliminate the process by which political appointees having little knowledge of the scientific basis for land management decisions can issue directives.
- Reinforce the importance of scientifically guided directives and consultation with Indian Tribal governments within the Forest Service Directive System for the responsible management of forest resources for the public benefit.
Woodwell urges the Forest Service to revise this proposed rule to restore the values of public participation and scientific integrity to inform responsible and sustainable federal forest management. This proposed rule threatens the wellbeing of our forests and the wellbeing of our citizens and Indigenous communities in favor of benefiting an elite few. Instead, Woodwell advises the Forest Service to look to its own mission of “caring for the land and serving people” as it moves forward in this much-needed update to the Forest Service Directive System.
A message from President & CEO Dr. Max Holmes
My house was built in 1870. It has been heated by wood, coal, oil, natural gas, and now electricity drawn from the sun. In one sense, that is a mundane property record. In another, it is the entire history of human energy, compressed into a single address.
Wood came first. It always does. Since our ancestors learned to control fire, biomass has been the default answer to cold and darkness. The house would have had a cast-iron stove, fed by wood cut from nearby forests. This is how virtually every human being on earth stayed warm for tens of thousands of years, and many still do. It worked, but it was labor-intensive, land-hungry, and contributed to deforestation.
Coal replaced wood in the industrializing Northeast not because it was loved but because it was dense, cheap, and abundant. A ton of coal contained far more energy than the equivalent volume of wood and could supply cities that had long since stripped their surrounding forests. Then came oil – heating oil delivered by truck, burned in a furnace that could be thermostatically controlled. Oil heat was modern. It was convenient. It was what the house was running on when my wife and I bought it in 2000. The following year, we switched to natural gas, piped directly to the boiler—cleaner than oil, cheaper at the time, and widely regarded as a “transition fuel.” Last year, we made what I believe will be the final transition: heat pumps, powered by electricity, with solar panels on the roof and a contract for renewable energy for anything we draw from the grid.
The sequence—biomass, coal, oil, gas, electricity—is not just our home’s story. It is the arc of modern civilization. And the direction of travel has always been the same: toward fuels that are denser, cleaner, and more controllable, and away from those that are dirtier, heavier, and harder to move. Electricity, especially when generated from wind and sun, is the logical end of that arc. The sun and wind are limitless natural resources and our ability to harness them into electricity will only continue to be more efficient. The energy transition the world is now debating is not some radical rupture; it is the next step in a journey that has been underway since the first furnace replaced the first wood-fired stove.
The only real question is speed. And here, the conflict now consuming the Persian Gulf offers an unexpected answer. The closure of the Strait of Hormuz following the outbreak of military conflict with Iran has removed close to one-fifth of global oil supplies from the market. Prices have reached $100 per barrel or higher. Nations that import the majority of their fuel from the Persian Gulf are facing genuine shortages. The head of the International Energy Agency has called it the greatest global energy security challenge in history.
The conventional assumption might be that an oil shock slows the energy transition – that higher prices make everything more expensive and governments retreat to fossil fuels out of desperation. History suggests the opposite. The 1973 Arab oil embargo helped to launch solar research, energy efficiency standards, and nuclear expansion. Countries around the world are again confronting the danger of energy dependence. That recognition tends to produce investment in alternatives, not capitulation to the status quo.
There are headwinds, of course. The current U.S. administration has been openly hostile to renewable energy, rolling back incentives and attempting to prop up coal and oil production. But administrations are temporary. Solar panels and heat pumps are not. The economics of clean energy have already crossed the threshold at which policy resistance can reverse them; what governments can do now is slow the transition at the margin, not stop it. And a geopolitical crisis that makes the cost of fossil-fuel dependence unmistakable—not in future climate projections but in today’s energy prices—has a way of clarifying minds.
My house has been through this before. It didn’t choose its fuels for ideological reasons; it followed the logic of cost, availability, and technology. The world’s energy system will do the same.
At a time when climate victories are scarce, an acceleration of the energy transition is reason for hope. Those with the financial means—and perhaps the broader good fortune to live in a time and place where the choice is available—can lean into this transition, doing what they can to speed the inevitable shift away from fossil fuels and toward what I believe will be humanity’s ultimate energy source: clean electricity generated from renewable sources.
The energy transition alone will not solve the climate crisis, but it is an essential step in that direction.
Onward.
Climate change speeding up
Current climate change has been well underway for decades, but the rate of that change is now going up so fast that people are noticing things like tornados and extreme heat waves are occurring in places where they have rarely been seen before. Dr. Jennifer Francis, a senior atmospheric scientist at the Woodwell Climate Research Center, joins Host Steve Curwood to explain how greenhouse gases from burning fossil fuels, the loss of reflective ice and snow, and other changes are increasingly causing the Earth to retain extra heat energy from the Sun.
Listen or read more on Living on Earth.
Woodwell Climate Research Center (Woodwell) appreciates the opportunity to comment on the Security and Exchange Commission’s proposed rescission of climate-related disclosure rules. As a scientific research organization dedicated to conducting science for solutions at the nexus of climate, people, and nature, Woodwell consistently advocates for robust, science-informed, and publicly accessible data for long-lasting sustainability and the benefit of the people.
Introduction
The mission of the Securities and Exchange Commission (SEC) is “protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.” The proposed rescission of the final climate-related disclosure rules stands in stark contrast to this mission. The proposed rescission argues that climate change is not a material risk to registrants or investors, but this is a false claim. Climate risk is business risk, and climate risk is financial risk.
Companies are already taking action to mitigate these financial risks, with over 80 percent of large, publicly registered companies disclosing their climate-related risks. Their willingness to take on the extra cost to engage in these voluntary disclosures is evidence of the broad industry awareness that climate change poses a significant financial threat. Investors also show wide-reaching recognition of the importance of climate-related disclosures, with 97 percent of those who mentioned Scope 1-3 emissions in their public comments in response to the 2022 proposed climate-related disclosure rules expressing support for the inclusion of those disclosures in the Final Rules. Investors and companies understand that, in order to adequately adapt to the threat of climate change, markets must know how industry is preparing for these challenges.
Under the current SEC disclosure rules, S&P 500 companies that volunteer to provide climate disclosures do so very briefly with little discussion of material issues or quantification of impacts or risks, while a large portion of companies disclose nothing related to climate in their annual filings. However, most S&P 500 companies that voluntarily disclose through the Carbon Disclosure Project provide a much more thorough analysis compared to the SEC process, demonstrating that while companies do have access to this information, they do not have access to a standardized process by which to disclose this information.
The SEC is choosing to put the desires of the registrants over those of the investors, citing increased costs and unnecessary effort for repetitive information for companies while downplaying the increased costs of acting on incomplete and asymmetric data for investors. In fact, the SEC repeatedly suggests that the investors who seek these more detailed and required disclosures are not “reasonable” investors as this information does not materially impact registered companies. This is doubtful considering that more than 41 countries, accounting for about 60 percent of the world’s GDP, have approved or proposed climate-related disclosure rules. Moreover, if the majority of investors, who possess a majority of the stock in public corporations, have expressed their desire for these climate-related disclosures, the disclosures should be presumed to be material. While 83 percent of comment letters received by the SEC supported the 2022 proposed climate-related disclosure rules, Feit v Leasco Data Processing Equipment Corp. determined that just 10 percent of public support is sufficient to define materiality.
The short-term political interests that color this proposed rescission do not usurp the decades of precedent inscribed in law or the interests of the American people. Woodwell urges the SEC to consider the scientific evidence and economic analysis that shows that climate change is a financial and material threat to industry, so that it may segment, critically examine, and revise individual provisions of the Final Rules. This process will better reflect an effort to protect investors and benefit the economy, as opposed to rescinding the Final Rules in their entirety.
Scientific objection to the rescission of climate-related disclosure rules
Woodwell’s research demonstrates that climate change and warming temperatures drive environmental hazards that threaten the everyday lives of Americans, as well as industry and the economy. Winter storms, extreme precipitation, and summer heat waves are just some examples of these increasingly frequent and intense weather patterns.
Extreme heat that exceeds the limits of what the human body can tolerate already occurs in the hottest parts of the world. Parts of every continent, except Antarctica, will see a rapid increase in these heat events under only moderate global warming scenarios, threatening outdoor working conditions in industries like agriculture and manufacturing. Wildfires will increase in frequency and intensity under these heated conditions, contributing to life-threatening poor air quality and further workplace disruptions, as well as the destruction of homes and buildings that require large insurance payouts. This warmer air holds more water vapor, which in turn condenses into clouds and drops flooding rains, similarly threatening physical infrastructure to the financial detriment of the insurance industry. Increasing heat also thaws permafrost, which causes infrastructural damage estimated at $37 billion to $51 billion in the state of Alaska under intermediate and high emissions scenarios, respectively.
Increasingly unpredictable weather patterns are already having a detrimental impact across the economy. Almost all sectors, including agriculture, real estate, insurance, and energy, are vulnerable to these climate risks. A hotel chain may have assets in areas that are vulnerable to coastal flooding, agriculture companies may see labor disruption due to extreme heat, and insurance companies may see rising property and casualty insurance payouts. Without productive action, industries will continue to suffer the financial consequences, making their climate disclosures critical knowledge to the average investor.
The critical role of climate risk to industry
The ever-escalating and increasingly frequent number of climate-related disasters has cost the United States upwards of $1.5 trillion dollars within the last decade. Recently, over 3,800 companies have reported a combined $2.9 billion in losses due to extreme weather, such as from heavy precipitation, operational shutdowns, and increased direct costs, in a single year. In 2024, natural catastrophes in the United States caused an estimated $145 billion in economic losses, of which $80 billion was insured. Further, insurers’ costs were higher in areas at higher climate risk, with the highest risk ZIP codes having about a $24,000 average claim as compared to an average claim of about $19,000 in the lowest risk ZIP codes. 83 percent of U.S. insurers recognize these dire circumstances and have widely adopted the Task Force on Climate-Related Financial Disclosure framework to provide disclosures across risk management, strategy, governance, and setting and tracking metrics and targets.
The proposed rescission attempts to argue that climate-related disclosures do not represent material risk, which it defines as “a substantial likelihood that a reasonable investor would consider it important or significant in deciding whether to buy or sell a security.” However, the flood of public support in response to the 2022 proposed climate-related disclosure rules stands in direct contradiction to that claim: 95 percent of the 320 institutional investors who issued a public comment supported its key provisions. Blackrock, Vanguard, and Fidelity, and State Street, four of the world’s largest institutional investors, as well as the SEC’s own Investor Advisory Committee supported the rulemaking while calling for some revisions, most of which were adopted in the Final Rule. One of the world’s leading independent asset managers, Wellington Management, which oversees over $1 trillion in assets, stated that climate disclosures are “critical” to its “ability to make informed investment decisions on behalf of our clients.” It also emphasized that its current evaluation of the financial impacts of climate change on issuers are limited by “inadequate information and the absence of a standardized framework for disclosure.” In total, at least 129 investors used their comment letters to describe the benefits of the rulemaking.
Further, the Adopting Release outlines a plethora of specific evidence and examples of the material benefits provided by climate disclosures that the proposed rescission chooses to ignore, including improved investment firm revenues, better aligned capital structures, lower loan losses and higher profits for banks, improved asset pricing and allocation of capital, and reduced costs for investors and companies to analyze climate-related information to inform investment strategy.
Rescission impacts on investor protections, financial risk, and climate resilience
This proposed rescission provides no basis to contradict the evidence presented in the March 2024 release that demonstrates how the vast majority of investors would benefit from a set of standardized climate-related disclosures. The FCC v. Fox Television Stations, Inc. ruling determined that any federal agency policy that aims to replace a previous policy by claiming it is based on incorrect factual findings must provide a detailed justification. This ruling was cited in the case National Association of Manufacturers and Natural Gas Services Group v. SEC, in which, in a very similar fashion to this proposed rescission of climate-related disclosure rules, the SEC rescinded a rule before it took effect. The judge in this case determined that without adequate evidence or explanation of the disregard of the factual findings of the previous policy, the rescission was “arbitrary and capricious.” Similarly, this proposed rescission of the climate-related disclosures rules does not detail why the factual determination of the Final Rules, which saw that the 2010 voluntary disclosures regarding climate risk were inadequate, is incorrect.
Under the 2010 rules, the quality and format of voluntary disclosures vary widely, with many companies presenting their climate plans and challenges through curated reports that more so reflect marketing strategies rather than a financial risk disclosure submission to the SEC. The Adopting Release is intended to provide a standardized framework and metrics to make these disclosures clear and comparable. While a line of argument in the proposed rescission claims that comparability is not an adequate reason to require these disclosures, former SEC Chair Jay Clayton has previously stated: “Disclosure and the concepts of materiality, comparability, flexibility, efficiency and responsibility have been, and continue to be, the bedrock principles that make our public capital markets the most fair and efficient markets in the world.” By rescinding the Final Rules, the SEC makes it more difficult for investors to compare across companies and make informed investment decisions.
One argument presented by the SEC in this proposed rescission is that the disclosure rules are far too granular, which they claim will overwhelm investors with unnecessary information. On the contrary, current business disclosures are often not detailed enough to present a useful method by which investors can adequately assess a company. Enhanced standards with specific details regarding market risk disclosures, quantitative analysis, and other granular statistics will root these disclosures in materialities. In the modern era of artificial intelligence (AI), innovations such as digital tagging offer accessibility to less financially literate investors. All things considered, it is better to provide a plethora of information for the sake of transparency than none at all.
There is also a benefit in the ability to compare companies across countries, especially as the world experiences an increasingly global market. Although international standards have been scaled back in recent years, they are more robust than the voluntary 2010 climate disclosure rules in the United States. The International Sustainability Standards Board (ISSB) is in the process of creating global standards for climate-related financial disclosures, which would make the investing landscape much simpler for companies and investors alike. Mandating climate disclosures in a format consistent with the ISSB standards would provide an ease of comparability that would significantly lessen the burden on investors. Other governing bodies such as the European Union and the State of California have already implemented their own climate-related financial disclosure rules in attempts to align with the ISSB. By not providing climate disclosures comparable to these international standards, US companies will be less attractive to the global investors who are concerned about climate financial risk, ultimately leading to a loss of benefits that outweigh the cost of disclosure.
The SEC argues that the costs of the implementation of these disclosures far outweigh the benefits, and in the process disregards all of the studies that the SEC previously identified to support the cost-benefit analysis of the Adopting Release. It is especially telling that the SEC highlights the increased costs on registrants as a result of the Final Rules while negating the increased costs on investors as a result of the rescission. Further, the proposed rescission focuses on increased costs of legal fees for registrants while failing to recognize that as other countries require disclosures, compliance with the rules will be less costly and less burdensome on the registrants. The proposed rescission does not contain a full and fair economic analysis of these disclosure requirements, despite the Adopting Release providing a detailed roadmap on how to reduce the burden and costs of this rule.
On the subject of policy, Section 7(a)(1) of the Securities Act of 1933 authorizes the SEC to require registration statements that contain any information it deems “necessary or appropriate in the public interest or for the protection of investors.” The Securities Exchange Act of 1934 further specifies SEC authority as “disclosure, investor protection, and fair markets,” which clearly extends beyond strictly financial disclosures. This contradicts the proposed rescission, which states: “disclosure mandates under the Federal securities laws had to relate to the financial condition of, and matters of economic significance to, the disclosing company.” Even if the authority of the SEC was as narrow as the proposed rescission describes, this argument is still insufficient as the Final Rules do fall within the purview of financial reporting. In response to the proposed climate-disclosure rule in 2022, 15 former senior SEC officials, 17 senior scholars of corporate, securities, and administrative law, and several leading advisors for public companies submitted a comment letter that outlined their “unanimous view the SEC has clear statutory authority to mandate additional climate-related disclosures for publicly traded companies.”
Additionally, the proposed rescission claims that these climate disclosure requirements do not address investor protection, but rather surround the “divisive and unsettled political and social issue of climate regulation.” However, the Final Rules do not dictate how companies respond to climate change, they simply call for climate-related disclosures. The rules only require disclosures regarding specific transition plans or goals if a company has previously created them, they do not dictate a requirement to create those plans. Following the proposed rescission’s line of logic that these disclosure rules unjustly “regulate issuers’ internal affairs” and thus must be rescinded, all corporate disclosure requirements would need to be rescinded. This is because any disclosure requirement may lead to a change in conduct: if a company reports disappointing earnings, it naturally follows that an investor may demand changes to its business strategy. However, this does not mean that the disclosure mandated changes to the operations of that company. This argument sets a dangerous legal precedent if the climate-disclosure rules are rescinded on these grounds, threatening the authority of the SEC to dictate any and all disclosures.
Finally, climate regulation is not simply a “divisive and unsettled political and social issue,” as the proposed rescission claims. It is also a legitimate basis on which to analyze investment strategies. Not forgetting the robust scientific evidence presented earlier in this comment that outlines the material risk associated with climate change, “socially responsible investing” is a well established investment strategy that considers both financial and ethical goals. There is no reason that the information presented in these climate risk disclosures is not material simply because it also integrates social or environmental elements that many investors consider important to their investment portfolio. By acting ethically and responsibly in light of the increased transparency provided by these climate-related disclosures, companies can increase investment and investor return, as well as limit their contributions to the ever-worsening climate crisis that threatens their operations and financial prosperity.
Conclusion
The Securities and Exchange Commission’s proposed rescission of climate-related disclosure rules contradicts the congressionally obligated responsibilities of the SEC by threatening investor protections. The overwhelming evidence demonstrates the benefit that these disclosures provide to both investors and registrants as climate risk increasingly threatens financial stability.
Woodwell urges the SEC to review the Final Rules on a provision by provision basis to address its specific concerns. Despite the proposed rescission’s claims that “the individual items of disclosure in the Final Rules are pieces of a larger whole and cannot operate sensibly without the others,” the Adopting Release specifically outlines how portions of the Final Rules can be severed and individually revised. This process could offer opportunities to clarify certain aspects of these rules, enhance flexibility, or provide companies with more time to prepare for these disclosures as a way to decrease burden. Woodwell suggests following this guide offered by the Adopting Release as the SEC moves forward in its revision of these climate-related disclosures, rather than rashly rescinding the rule in its entirety. It is imperative that these actions are in pursuit of the protection of investors and American financial markets, rather than political motivations.
Dr. Zhongqi Chen has dedicated his career to understanding how fish handle environmental stress. Now, as a Research Scientist at Woodwell Climate Research Center, he is bringing his expertise in fish physiology, stream ecology and data sciences to the Science on the Fly project as the new Science Lead. We sat down with Zhongqi to discuss why a two-degree water temperature shift is a game-changer for wild trout, how local water sampling scales up to global conservation, and why the single bottle of water collected by our community scientist is a critical piece of a much bigger puzzle.
Read more on Science on the Fly.
