Proposed SEC Climate Rules: Implications for the US Health Care Sector

The climate crisis is an emerging threat to U.S. financial stability. Costs related to infrastructure damage and business interruptions from weather- and climate-related disasters have risen steadily since 1980. At the same time, averting catastrophic global warming necessitates a rapid transition from fossil fuels to clean energy sources — and costs associated with the energy transition are estimated to be in the trillions of dollars annually. Growing concern about the climate threat to financial systems is reshaping how businesses, investors, financial institutions, and regulators approach climate-related financial risks. As part of this paradigm shift, the U.S. Securities and Exchange Commission (SEC), the federal agency that oversees and regulates securities (e.g., stocks, bonds, mutual funds), has proposed new rules that would require companies that are publicly traded in the United States (e.g., traded on American stock exchanges) to report (disclose) detailed information about risks to their businesses posed by climate change, including ways the businesses could be harmed by the escalating climate crisis (e.g., facility damage from severe events) and risks associated with their own contribution to climate change (e.g., financial risks related to their greenhouse gas emissions). As of October 20, 2023, the SEC proposal, Rules to Enhance and Standardize Climate-Related Disclosures for Investors, has yet to be formally adopted and may undergo significant change relative to its content and scope. Industry lobbying, legal challenges, and political headwinds may alter its final form, though it is widely expected that climate-related disclosure rules, even if modified, will ultimately be adopted. While the intention of the SEC proposal is to ensure that investors have better information about climate risks facing companies, it will have broad implications across the health care sector, impacting health care product and supply companies as well as direct care providers such as hospitals and health systems. For the purposes of this paper, companies that provide direct patient care are referred to as health care organizations (HCOs). If the SEC proposal is adopted, publicly traded HCOs, in addition to providing routine SEC financial filings, will be required to include climate-related financial risk disclosures. While the rules strictly apply only to publicly traded companies, it will create pressure for similar disclosures throughout the health care sector. All HCOs — publicly traded, nonprofit, government owned, and privately held — should consider adopting climate risk assessments and disclosures in anticipation of the new SEC climate rules. Here, the authors provide a brief overview of the proposed SEC climate rules as related specifically to publicly traded HCOs and discuss potential ramifications for the entire health care sector.