U.S. Regulator to Require Climate Risk Disclosure from All Publicly-Traded Companies

The U.S. Securities and Exchange Commission (SEC) has adopted a new plan to force all publicly traded corporations to disclose their greenhouse gas emissions and the climate risks they face.

The “landmark proposal” will require hundreds of U.S. companies to “report their planet-warming emissions in a standardized way for the first time,” the Washington Post reports. At a meeting Monday, with three Democratic commissioners supporting the plan and the lone Republican opposing it, SEC Chair Gary Gensler said the new rule “would provide investors with consistent, comparable, and decision-useful information for making their investment decisions and would provide consistent and clear reporting obligations for issuers.”

The rule would require all publicly-traded companies to “disclose their climate-related risks in their financial reports to the SEC and explain how those risks will probably affect their business and strategy,” the Post writes, citing a commission fact sheet. “All firms would be required to share the emissions they generate at their own facilities, and larger businesses would need to have these numbers vetted by an independent auditing firm.”

Companies that have issued public commitments to reduce their climate impacts will be required to show how they plan to meet their targets. Firms will also have to disclose indirect emissions if they consider them “material” to investors, or if they’re included in their climate targets.

“Companies also would need to disclose their reliance on carbon offsets, which some climate activists view with skepticism, to meet their emissions reduction goals,” the Post says.

Businesses often include emissions information in their annual sustainability reports and investor updates, the news story notes. “But there are sometimes wide discrepancies between companies, even among competitors.” Now, the SEC wants to fold those various formats into a standard based closely on the recommendations of the Task Force on Climate-Related Financial Disclosures, a process launched seven years ago to make climate risk more visible to investors.

“Investors have driven the demand for this information. But it needs to be consistent and comparable across the globe,” said Mary Schapiro, a former SEC chair under President Barack Obama who now serves as the TCFD’s vice chair for public policy. “And there are lots of companies that won’t do it unless it’s mandatory.”

Climate groups welcomed the announcement, but said it shouldn’t be up to companies to decide whether the “Scope 3” emissions that often account for 75% of their carbon footprint are “material” to their climate risk.

“This is really important, and I’m happy that the SEC is moving forward with it,” Alex Martin, senior policy analyst for climate finance at Americans for Financial Reform, told the Post. “But from our perspective, the Scope 3 [mandate] needs to be strengthened, and we will be making the case for that in the public comment period.”

Republican state officials are already on record threatening to challenge the SEC’s authority to compel disclosure of environmental data. “West Virginia and other states will vigorously participate in the rulemaking process, and, if necessary, go to court to defend against any regulatory overreach by the SEC in the name of climate disclosures,” state Attorney General Patrick Morrisey told the Post in an email.

With a two-month public comment period now under way, “the SEC proposal will probably come under fire from industry groups claiming that the agency seeks to impose an excessive burden on companies and is ranging beyond its expertise and congressional mandate,” Utility Dive writes, citing environmental law experts. As well, “organizations such as the Business Roundtable and U.S. Chamber of Commerce may challenge the SEC’s bedrock assertion that carbon emissions are a ‘material’ fact that should be included on a company’s financial statements.”

Hester Peirce, the only SEC commissioner to vote against the proposal, warned that disclosure would accelerate the growth of a presumed “climate industrial complex”, Utility Dive adds.

“We are here laying the cornerstone of a new disclosure framework that will eventually rival our existing securities disclosure framework in magnitude and cost and probably outpace it in complexity,” she said. “The proposal takes us outside of our statutory jurisdiction and expertise, which harms the agency’s integrity,” and “filling SEC filings with information that is inherently unreliable undercuts the credibility of the rest of the information in these important filings.”

But Climate Tech VC says major companies from BlackRock to Walmart are already calling for climate risk disclosure, adding that the SEC proposal “will help bring the U.S. closer in line with the over 30 countries that have already taken action to mandate climate risk disclosure.” The existing reporting requirements “aren’t driving adequate disclosure,” the industry newsletter states, “with 93% of institutional investors claiming that markets haven’t accurately priced climate-related financial risks.”

The Washington Post has a deeper dive on how the SEC proposes to enforce the new rule, how the data it gathers will be used, when the rule will take effect, how vulnerable it might be to a court challenge, and what other countries are doing on climate risk disclosure.