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Biden’s Climate Plan and The SEC’s Pending ESG Disclosure: Key Takeaways for Commercial Real Estate

Despite a first attempt to roll out a clean electricity bill that was subsequently blocked in the Senate, President Biden recently announced his new climate plan, one of the largest federal plans proposed to date. But while his first bill had provisions to reward and regulate power plants, with the ultimate goal of generating 80 percent of all power from clean sources by 2030, his new plan places heavy emphasis on incentives requiring broad participation, and is only expected to achieve 40 percent clean energy by 2030.

While Biden’s latest plan does not come without its challenges, experts still project that the plan aligns with his stated goal to achieve net zero emissions in the United States by 2050. The plan lays out a three-pronged approach, including:

  • $300 billion in tax incentives for wind, solar and other clean energy;
  • Stricter regulations on power plants and automobiles to reduce pollution and emissions; and 
  • Reliance on states to enact or expand clean energy laws

One notable component of Biden’s plan is significant spending to support the electrification of several high-emitting sectors, including: 

  • $17.5 billion to reduce emissions from federal buildings and vehicles 
  • $13.5 billion for building E.V. charging stations and electrifying heavy-duty diesel-powered vehicles and,
  • $9 billion to upgrade the electric grid to improve the transmission of renewable power

What does this mean for CRE? Potential savings and enhanced local regulation

While it may be a bit too early to tell, we can rely on the idea that there will be increased funding for cities and states to roll out large incentive programs, and pressure to expand the scope of increasingly ubiquitous energy efficiency regulations and performance standards for buildings. This goes hand-in-hand with several provisions in the infrastructure bill currently being considered in Congress, including $225 million in grants to update building codes, and $40 million to train people to conduct commercial and residential energy audits. 

The good news: incentive programs will likely have a longer shelf life, lasting ten years as opposed to five – and with a $300 billion budget, we expect their reach to be significant. Utilities will likely be given incentives to provide renewable energy options, and consumers will have more choice as a result. Ultimately, this could result in significant savings on electricity for building owners and operators. 

The challenge: if city and state regulation is any indication, prepare for increased benchmarking and emissions disclosures, required energy audits, and emissions limits or caps placed on the largest buildings. 

SEC ESG disclosures pending to encourage corporate participation

While Biden’s plan will help cut emissions, cities, states, consumers and companies must all participate to reach Biden’s stated 2050 net zero goal. ESG no longer needs much explanation as it is now considered a primary vehicle for helping ensure companies are doing their part in this arena. And after more than a decade of growing investor demand for more information from companies on ESG-related risk, the SEC is stepping in to help provide greater transparency. 

The journey to get here hasn’t happened overnight. It began back in March 2021 with the SEC’s creation of a climate and ESG task force focused on disclosure violations. The task force was intended to “proactively-identify ESG-related misconduct,” including material gaps or misstatements in issuers’ disclosure of climate risks. Then, in May 2021, the SEC announced that it would propose a rule requiring that public companies report a range of climate-related and workforce data as part of the agency’s broader effort to strengthen its stance on ESG. 

This past spring, the SEC issued a “Request for Comment” to help inform the discussion about whether current disclosures adequately inform investors. This has led to a broader conversation around several key points, including: to what extent should disclosures be linked to financial materiality? What metrics can be standardized and applied across industries and sectors? Many experts argue that materiality is not determined solely by the financial impact, and does not have to be quantitative. Experts point to health and safety disclosures as apt metaphors for this debate. John Coates, the SEC’s acting director of corporate finance, relates ESG disclosures to examples from the past such as asbestos

​”For years, asbestos-related risks were invisible, and information about asbestos would likely have been called ‘non-financial.’ Over time, those risks went from invisible to visible to extremely clear, and clearly financial.”

While the SEC’s ESG task force is still gathering and reviewing all commentary, we know that a disclosure requirement is likely coming. If the pre-existing ESG frameworks are any indicator, we can expect the environmental metrics to be focused on emissions, emissions reductions and climate-related risk to start. On the social side, SEC Chair Gary Gensler has stated that the requirement will focus on workforce or "human capital" metrics specifically. These could include metrics around diversity, part-time versus full-time employees, and employee turnover.  Finally, since materiality is such a debated topic, we can also assume that conducting and reporting the results of an ESG materiality assessment will be key.

What does this mean for CRE? Disclosures focused on climate, human capital and materiality

Any mandatory ESG disclosures will apply to all public companies, and require resources for both reporting (disclosing) and operations (executing). And with growing scrutiny from investors and the capital markets, it is likely that private companies will also feel the pressure to wind up voluntarily disclosing as well. 

As many ESG professionals know, behind the seemingly simple line item metrics in the back of a financial statement are a village of people, processes and technologies working together to set goals, achieve them, and report on performance. So for those who have not yet started on their ESG journey, now is a great time to begin preparing and planning for additional resources and focus on the basics: wrangling your energy, emissions, and human capital data. And for those further along, now is the time to hone in on the ESG topics most material to your company to ensure continued progress towards these goals.

Learn more about how Aquicore's latest product updates help you manage your ESG program.