Olivier Douliery/AFP via Getty Images
Every year, public companies in the United States are required to provide investors and regulators with detailed data on their financial performance and the risks they face. Soon they may also have to disclose information about how they are dealing with climate change.
The U.S. Securities and Exchange Commission on Monday formally proposed new rules that would require companies to report their greenhouse gas emissions for the first time, along with details about the impact of climate change on their businesses.
Although some companies such as Apple have voluntarily disclosed climate-related information, so far no standardized requirements have been imposed by the SEC.
In a statement of support for the proposed rules, SEC Chairman Gary Gensler said the regulator is responding to demand from investors and companies given the growing demand for information about the risks that change-related events climate are weighing on companies.
“Our core market since the 1930s has been for investors to decide what risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures,” Gensler said. “This principle also applies to our environmental disclosures.”
Evelyn Hockstein/Pool/Getty Images
The rules would be introduced gradually
If regulators approve the rules, companies would be required to provide climate-related information when they register as public companies with the SEC, as well as in annual filings.
Companies should disclose potential risks to their operations from climate-related events, such as having operations in an area at risk of sea level rise.
The rules would also require companies to provide data on their own greenhouse gas emissions, as well as the amount of energy they use. These are referred to as “Scope 1” and “Scope 2” emissions, respectively.
“Scope 3” emissions have proven more controversial. These are the emissions generated by a company’s suppliers and customers. Many companies and trade groups, including the U.S. Chamber of Commerce, have opposed mandatory reporting of Scope 3 emissions, saying it would be too cumbersome and complicated to estimate emissions in the all of a company’s operations.
Under rules unveiled on Monday, the SEC said it would be up to companies to determine whether their Scope 3 emissions are “material” – meaning data would be an important factor for an investor to know.
Investors and the SEC itself could challenge a company’s assessment of what counts as material information. Small businesses would be exempt from reporting their Scope 3 emissions.
The rules would be phased in in stages, with an additional introductory period for Scope 3 disclosures. This means companies may not have to file climate risk information until 2024 at the earliest.
The public will have 60 days to vote on the proposed rules.