Companies looking to trade on Wall Street may soon have to disclose their greenhouse gas emissions and other climate-related risks to prospective investors.
The U.S. Securities and Exchange Commission (SEC) unveiled the new proposals on Monday, which are intended to “enhance and standardize climate-related disclosures” to address growing investor interest in the company’s climate footprint. Under the new proposals, companies would have to disclose climate-related risks that are “reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics.” That would mark a major shift away from the current standard of mostly voluntary disclosure.
The SEC’s proposals would require disclosures for direct and indirect emissions in addition to emissions generated by a company’s suppliers. That last requirement could prove especially important to large tech firms which have historically depended heavily on complex global supply chains to ship consumer electronics. Independent certification would be required for all of those estimates which could, in effect, gut the honour system some firms currently use when self-reporting emissions.
“Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures,” SEC Chair Gary Gensler said in a statement. “Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognise that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.”
Though many of the country’s largest firms, from ExxonMobil to Alphabet, have submitted their own climate reports and disclosures for years, they’ve largely operated in an anarchic, free for all devoid of enforceable standards or truly objective auditors. Case in point, an assessment released earlier this year by the NewClimate Institute looked at 25 of the world’s largest companies claiming to have “net zero” carbon goals and were actually only reducing their emissions by 40% on average. “We were frankly surprised and disappointed at the overall integrity of the companies’ claims,” Thomas Day, the report’s lead author said.
And while U.S. tech companies have made meaningful movements in reducing some emissions in-house, the same can’t be said for the broader category of “Scope 3 Emissions.” Both Microsoft and Amazon, for example, have actually recorded emissions increases in recent years.
SEC Commissioner Caroline Crenshaw said “outdated” and “outmoded guidance” had left a vacuum where companies are forced to essentially figure out climate-related disclosures on their own and hope for the best.
“Companies do not know which regime to follow, what information to disclose, and how best to disclose it,” Crenshaw said in a statement. “The result has been frustration — with companies making disparate climate disclosures that vary in scope, specificity, location, and reliability; and investors who do not have accurate, reliable, and comparable information.”
Predictably, the SEC proposals were met with immediate resistance from groups like the U.S Chamber of Commerce and some Republican lawmakers.
“The Chamber is concerned that the prescriptive approach taken by the SEC will limit companies’ ability to provide information that shareholders and stakeholders find meaningful while at the same time requiring that companies provide information in securities filings that are not material to investors,” Tom Quaadman, Executive Vice President for the U.S. Chamber’s Centre for Capital Markets Competitiveness said. “Public companies have been and will continue to meet the interests of their investors on climate-related information.”
Senator Pat Toomey blasted the regulator’s proposal. The Pennsylvania Republican and member of the Senate Banking Committee claims the proposal “hijacks the democratic process and disrespects the limited scope of authority that Congress gave to the SEC.”
Today’s action hijacks the democratic process and disrespects the limited scope of authority that Congress gave to the SEC.
This is a thinly-veiled effort to have unelected financial regulators set climate and energy policy for America.https://t.co/5T32GbcwOQ
— Senator Pat Toomey (@SenToomey) March 21, 2022
The SEC declined to comment for this story.
SEC commissioners voted 3-1 along party lines to advance the proposal. It will now undergo several months of public comment before commissioners regroup to draft a final proposal. If enacted, companies would have to submit the climate disclosures through annual reports.
Editor’s Note: Release dates within this article are based in the U.S., but will be updated with local Australian dates as soon as we know more.