New SEC Rule Would Require Businesses To Reveal Their Climate Impacts

Topline

The U.S. Securities and Exchange Commission Monday issued a proposed rule that would require all publicly traded companies to disclose their greenhouse emissions and other climate impacts—a move that some scientists say could help diminish the risk of future climate-induced financial crises.

SEC chair Gary Gensler testifies before the Senate Banking, Housing, and Urban Affairs Committee on … [+] September 14, 2021.

Bill Clark/CQ-Roll Call, Inc via Getty Images

Key Facts

The rule would require all U.S. and foreign SEC-registered companies to report their management of climate-related risks and to report any climate-related goals and associated transition plans, and will be known as the Enhancement and Standardization of Climate-Related Disclosures for Investors.

Conservation nonprofit the Union of Concerned Scientists (UCS) said that the SEC’s rule, if enacted, would mark a significant step toward holding businesses accountable for their impact on global warming and averting climate-caused economic disruptions that would affect everyone from CEOs to wage workers.

If approved, the rule would require companies to separately disclose direct greenhouse gas emissions, indirect emissions from purchased energy and other indirect emissions.

Companies with public climate goals would be required to furnish data each fiscal year showing whether progress was being made toward those goals.

The proposed rule would widely apply a reporting framework similar to those already applied at a more limited scale by groups like the G20 Task Force on Climate-Related Financial Disclosures, the SEC said.

The public has until at least May 9 to comment on the proposed rule.

Key Background

The proposed rule is the brainchild of SEC chair Gary Gensler, who has advocated for the SEC to take into account climate-related and social issues in its regulatory policy since he took office in 2021. Gensler said that climate reporting rules fit in with a tradition of disclosure requirements dating back to the Great Depression, and that climate-related issues were a frequent topic of concern for investors. Gensler has said he would like to establish a system roughly similar to that used in the Olympics, where the public uses a broad, standardized set of rules to easily compare athletes from different countries and across different events. Some corporations, including Apple and Facebook, already voluntarily disclose detailed climate-related data. However, some trade groups have already declared their opposition to the proposed rule, possibly foreshadowing legal challenges that could postpone it from going into effect, the New York Times reported. Economic crises—like those that could occur if greenhouse emissions continue without improved regulation—impact all levels of society, but tend to hit low-income communities most severely, said UCS Climate Accountability Campaign Director Kathy Mulvey in a statement.

Big Number

14.5 trillion. That’s how many pounds of greenhouse gas the U.S. emitted in 2019, according to the Environmental Protection Agency.

Contra

SEC Commissioner Hester M. Peirce said the proposed rule would needlessly disrupt current disclosure guidelines without establishing an effective system for reporting climate impacts.

What To Watch For

If passed with an effective date this December, the new climate reporting requirements would be phased in from fiscal year 2023 to fiscal year 2027, the SEC said.