SEC Inches Closer to Announcing Climate Disclosure Rules

SEC Inches Closer to Announcing Climate Disclosure Rules

The Security and Exchange Commission (SEC) has set into motion a proposal to mandate climate-risk disclosures from publicly-traded companies and hold them to their net-zero promises. The proposal goes into review at the SEC's March 21 meeting. Climate impacts that would be up for disclosure include scopes 1 and 2 emissions, accounting for operational emissions and energy consumption. But it's possible that even scope 3 emissions (resulting from a company's extensive upstream and downstream aspects) would be required reporting, from the goods and services in their supply chains.

SEC: The SEC & Climate Risk Disclosure - Office Hours with Gary Gensler, July 28, 2021.

Why This Matters

It will be a game changer if corporations are required to accurately report their climate impacts. According to a study published last week, "the overwhelming majority of companies [surveyed]" don't have ambitious enough climate pledges and aren't taking the necessary steps to reduce their emissions and hit net-zero targets. Only 1% of the more than 13,000 companies studied disclosed all necessary information to determine whether their climate plans are credible. As SEC Chairman Gary Gensler put it in a Twitter thread: "Like the Olympics, fans compare skiers across heats, countries, & generations. Investors today are asking for the ability to compare companies w/ each other."

NBC: Are Major Companies Living Up To Their Net-Zero Pledges To Combat Climate Change?, February 10, 2022.

The Financial Sector Takes on Climate

It is almost the norm for companies to avoid or underreport emissions. But some investors want to know that a company's profits won't be hindered by future climate regulations, from supply chains to final products. These SEC regulations are a response to a global trend that began in Europe and has galvanized ESG investors, who assess companies based on their climate commitments, and comprise a $17.1 trillion sector, or one-third of total US dollars under professional management.

Federal Reserve Chairman Jerome Powell summarized the Fed's role in affecting climate, stating, "Our role on climate change is a limited one, but it's an important one. And it is to ensure that the banking institutions we regulate understand their risks and can manage them."

Across the pond, the UK has plans in place to mandate climate disclosures beginning this April, and the EU has also implemented reporting rules.

SEC: ESG Investing - Office Hours with Gary Gensler, March 3, 2022.

CNBC: Nasdaq CEO on ESG - We are a disclosure economy, January 12, 2022.