MBA balks at proposed SEC emissions rules

Rules would require public firms to disclose extensive information in filings

MBA balks at proposed SEC emissions rules

The Mortgage Bankers Association has submitted a letter to the US Securities and Exchange Commission related to the regulatory agency’s notice of proposed rulemaking centered on climate-related risk and company greenhouse gas emissions, positing proposed policies are unnecessary.

The letter conveys MBA’s view that the regs are unnecessary to achieve SEC’s objective of “…ensuring investors are provided with decision-useful information about climate-related financial risks,” arguing that public companies are already required to disclose material information. In the letter, the MBA specifically recommends that reporting of Scope 3 GHG emissions – including those from properties securing mortgages – should be voluntary. “GHG emission are not really related to climate-related risks,” the MBA argued in its letter. Moreover, the group insists that all new mandatory Regulation 5-K climate-related risk reporting should be limited to “material” information.

The MBA also suggested the SEC “…should not add new (and unworkable and non-decision-useful) Regulation S-X notes to financial statements on the impacts of severe weather events.” Furthermore, the group suggested the projected implementation schedule should be extended by at least two calendar years. MBA also previously joined a real estate industry letter commenting on the proposal.

Issued in March, the SEC’s proposed rules were largely viewed as landmark moves that would require public companies to disclose extensive climate-related information in their SEC filings. Scope 3 emissions categories include purchased good and services, capital goods, fuel- and energy-related activities. Climate-related risk refers to the potential negative impacts of climate change on an organization. It includes the potential for adverse effects on lives, livelihoods, health status, economic, social and cultural assets, services (including environmental) and infrastructure due to climate change.”

Read more: Fannie Mae: Investing in green bonds pays off

In objecting to the proposed rules, the MBA noted it already promotes environment-friendly practices. “MBA is also a proactive participant in policy and market developments on climate-related issues,” officials wrote. “We have been actively helping our members respond to the risks and benefits arising from extreme weather and other natural events, and to increasing market appetites for Environmental, Social, and Governance (ESG) investing.”

MBA officials outlined those existing measures:

  • “MBA formed a Green Lending Roundtable where commercial and multifamily MBA members work together to gather and share information on emerging investor expectations and appetites on climate risk and ESG, and to identify policy and other trends and conditions in climate and ESG investing.”
     
  • “MBA has responded to climate-change risk issuances by the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA), the Federal Insurance Office (FIO), the New York Department of Financial Services (NY DFS), and the SEC. MBA continues to host ESG and climate-change-focused webinar events for members, including events covering an overview of net zero in commercial real estate (CRE), ESG terms and definitions, and challenges and opportunities related to implementing ESG into CRE business.”
     
  • “MBA is working with the Mortgage Industry Standards Maintenance Organization (MISMO), the real estate finance industry’s standards organization, to facilitate the development of green lending and ESG standards, including, but not limited to, data, terms, and definitions to support the flow of consistent information throughout the mortgage finance ecosystem.”

While objecting to the proposals, MBA noted it shared the SEC’s environmental ideals: “MBA shares the Commission’s objective of ensuring investors are provided with decision-useful information about climate-related financial risks,” officials wrote. “This extensive rulemaking, however, does not appear to be entirely necessary to achieve that objective. Public companies are already required to disclose material information relevant to their financial condition and results of operations, which would include information regarding a company’s material climate-related financial risks. It appears, therefore, that the objective of ensuring companies disclose material information could be addressed under current rules.”

Read next: How will CRE investors rise to the challenge of climate change?

A major point of contention revolves around “material” data: “If the Commission nevertheless determines to issue new rules, we believe those rules should be tailored to focus on disclosure of material information about material risks,” MBA officials wrote. “The Commission has long recognized that disclosure of immaterial information does not serve investors’ interests, and mandatory disclosure of immaterial information may mislead investors into believing the information is more important than it really is.”

MBA is the national association representing the real estate finance industry, with a membership of more than 2,000 companies.

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