The rule freaking banks out more than the SEC’s

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THE BIG IDEA

THE LONG ARM OF THE EU — Corporate America is already freaked out over the SEC’s looming climate disclosure rule, but they could be staring down the barrel of something even more onerous.

A European Union proposal to require all large companies doing business in the bloc to police their value chains for environmental and human rights risks is worrying U.S. investors, asset managers and bankers, Sarah Anne Aarup and Jordan Wolman report.

Lawmakers in the European Parliament are set to vote on the due diligence rule during their plenary session June 1 after it cleared a committee last week.

It would go way further than the SEC’s rule, which would only require disclosure of companies’ emissions, climate change strategies and exposure to climate risk. The EU law could compel them to put emissions-reduction goals in their business plans.

European courts could hold companies liable for slacking off on their obligations, no matter where the human rights or environmental violation occurred in the world — and national authorities in the EU could slap potentially hefty fines on businesses.

The EU doesn’t usually have to wait around for the U.S. on regulations, especially on green ones. And they’re not — but U.S. companies that do business in Europe are trying to water it down.

The American Chamber of Commerce to the EU, which advocates for U.S. companies doing business in Europe, warned Treasury Secretary Janet Yellen and the EU’s financial stability commissioner in March that the policy could be enforced on loans taking place entirely within the U.S., arguing that it could increase risk by driving financial activity to smaller firms not covered by the rules.

“We’re putting a lot of our resources to bear on it,” said Tom Quaadman, executive vice president at the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. “We view this as a very important priority.”

Investment giants are pushing back, too, through their main trade group, the Investment Company Institute. “We are concerned that lawmakers are imposing unrealistic expectations on asset managers to induce changes in companies even though asset managers do not have that ability,” said Victor van Hoorn, managing director in Brussels for ICI.

It’s not yet clear whether the U.S. finance sector has secured any concessions. The European Commission and Parliament are holding firm on requiring all sectors to police their supply chains, but the European Council is proposing to carve out financial services, after pushback from France.

Sustainable Finance

WHO’S AFRAID OF THE WOKE INVESTOR? — State Street, for one. The asset manager’s CEO, Ron O’Hanley, told the Milken Institute Global Conference on Monday that he’s more worried about divestment campaigns from climate activists than from conservatives.

“To me, there is not a dumber thing in the world than to put pressure on an investment manager or, for that matter, an asset owner, to divest,” he said. “What gets accomplished out of it? Well, the portfolio gets decarbonized. Does the air we breathe change? Not at all.”

He characterized anti-woke activists as a second-order effect of the woke ones.

“It’s a reaction to the divestment pressure,” he said. “If you ask me what I’m more concerned about, I’m actually much more concerned about the divestment pressure, because this transition is going to be a long one.”

EXTREMES

STORM SURGE — Florida and Louisiana are so hard-hit by hurricane insurance claims that they’re having to borrow hundreds of millions of dollars and charge residents for the costs, Thomas Frank reports for POLITICO’s E&E News.

The Florida Insurance Guaranty Association announced plans in April to borrow as much as $750 million to pay claims from Hurricane Ian, as well as the costs of litigating lawsuits filed by policyholders challenging insurance payments. The association last borrowed money in 1992 after Hurricane Andrew.

The Louisiana Insurance Guaranty Association is borrowing $600 million to pay hurricane claims, largely stemming from Hurricane Laura in 2020 and Hurricane Ida in 2021. It’s the first time it has borrowed since 1989. Louisiana will pay $275 million in interest until the money is repaid in 2038, financial records show.

The costs will be spread across each state via higher premiums on a range of policies including auto and theft coverage. Industry analysts are warning that additional Gulf Coast insurers could become insolvent before hurricane season starts June 1.

“This is an extraordinary event for us,” said John Wells, LIGA’s executive director. “With climate change the big question is, how much do these catastrophes cost and how is that going to be funded?”

FLOOD WATCH — Meanwhile, Charleston, S.C., is adapting by banning a homebuilding method that exacerbates flooding, Daniel Cusick reports for E&E.

The Charleston City Council passed an ordinance last month outlawing “fill-and-build,” a flood-adaptation technique that raises homes above the floodplain via a pile of dirt, essentially. It can result in more flooding as stormwater from built-up lots drains rapidly to lower-lying areas, worsening conditions for neighboring properties and swamping roads and sewers.

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Team Sustainability is editor Greg Mott, deputy editor Debra Kahn and reporters Jordan Wolman and Allison Prang. Reach us all at [email protected], [email protected], [email protected] and [email protected].

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