The U.S. Securities and Exchange Commission (SEC) has adopted new rules forcing large companies to disclose their greenhouse gas emissions and tell investors how their businesses are affected by climate change.
The new rules are weaker than those originally proposed by the SEC in March 2022, which would have included a more comprehensive understanding of a company’s carbon footprint. Initially, it wants each company to share the pollution generated by its operations, as well as emissions from supply chains and product use. Under the rules finalized today, companies do not have to measure and disclose pollution from their supply chains and products — even though these emissions are often the largest part of a company’s carbon footprint.
As a result, environmental advocates and Trade groups that opposed the SEC’s original proposal all scored partial victories. The new rules create more transparency than ever before regarding a company’s environmental impact. Meanwhile, climate advocates say the rule can still be strengthened.
“You can’t solve a problem if you can’t measure it in the first place.”
“From an SEC perspective, [the rule] It will ensure more consistent information for investors, which is good for capital markets… Investors have been asking for it because they understand climate risk is financial risk and you can’t manage the problem if you can’t measure it in the first place,” Ceres said Steven Rothstein, managing director of the Sustainable Capital Markets Accelerator.
The rule also requires large companies registered with the U.S. Securities and Exchange Commission to share the impacts and risks they face from climate change. But the biggest controversy surrounding the rule concerns how transparent companies need to be about their greenhouse gas pollution.
A company’s carbon footprint – how much earth-heating pollution it generates – is measured across three “scopes”. The scope that includes indirect supply chain and consumer emissions (Scope 3) has been controversial since the SEC first proposed climate disclosure rules in 2022.
“We believe that Scope 3 disclosure requirements should not be designed to push public companies to implement emission reduction targets outside their control,” BlackRock said in a statement in June 2022.
“This tracking [of Scope 3 emissions] It would be extremely expensive, invasive and burdensome for farmers and ranchers,” agricultural groups including soybean, corn, beef and pork producers wrote in comments to the SEC.
After facing swift backlash from industry groups, particularly agriculture and banking groups, and receiving some 24,000 public comments, the SEC exceeded its original 2023 deadline and ultimately watered down the rule. SEC Chairman Gary Gensler said: “While many investors have commented on this, and many investors today use Scope 3 information in investment decisions, based on public feedback we are not currently requiring Scope 3 disclosures. Emissions Information.” at a public meeting today.
More broadly, Republicans have led the opposition to ESG investing, or investments that consider environmental, social and governance factors. The United States faces the return of former President Donald Trump, who rolled back more than 125 environmental regulations during his first term, so now the fate of the rules on the books may depend entirely on the outcome of this year’s election.
Under the rules implemented today, large public companies will still have to report direct emissions from their operations and energy use that are “material” or essential for investors to understand the company’s financial health. These disclosures will begin in fiscal year 2026. “If the SEC does not include scope three, then [the rule] will be incomplete.But we still think it will be a step forward,” Rothstein said in an interview edge before the rules are finalized.
Companies doing business in California may still be required to share their Scope 3 emissions after the state passed a broader bill last year. Companies with annual revenue of more than $1 billion must publicly report greenhouse gas emissions from their operations and electricity use by 2026, and disclose Scope 3 emissions by the following year. The California Chamber of Commerce, the American Farm Bureau Federation and other business groups have filed lawsuits to stop its implementation. The SEC’s new rules are expected to face similar legal challenges.
However, other companies are more supportive of disclosure. “While these emissions are difficult to measure, they are critical to understanding the company’s full impact on the climate,” Michael Foulkes, Apple’s director of state and local government affairs, wrote in a report. letter Before California passed climate disclosure rules. More than 80% of the 1,000 largest public companies in the United States already share climate-related information in their ESG reports.