Updated Mar 21, 2022 - Economy

SEC proposes first climate disclosure rules for public companies

Illustration of a storm destroying a roof made from a one hundred dollar bill

Illustration: Annelise Capossela/Axios

The Securities and Exchange Commission (SEC) voted 3-1 Monday to propose regulations that, for the first time, require companies to disclose their greenhouse gas emissions as well as their exposure to climate change risks.

Why it matters: The rule is meant to give companies more certainty about how they need to incorporate climate change into their financial reporting, but it contains gaps that may allow big emitters to obscure their complete carbon footprint.

The big picture: In proposing climate risk disclosure rules, the SEC is effectively trying to set a floor for companies to meet or exceed when reporting how prepared they are for the consequences of a warming world.

Details: The proposed rule would require companies to include certain climate change information on their financial reports, such as their Form 10-K.

  • The information to be disclosed would include how climate-related risks could affect the company's business, strategy and projections.
  • The company's greenhouse gas emissions would need to be audited by an outside party. The rule gives firms wiggle room over emissions embedded within its value chain, such as those caused when customers use its products, which are known as "Scope 3" emissions.

Yes, but: Companies would have a delayed start for disclosing Scope 3 emissions, and such disclosures would only apply to firms that consider Scope 3 emissions to be "material" or that have set Scope 3 emissions reduction targets.

  • This could allow companies to avoid disclosing Scope 3 emissions, which in many cases are the largest share of their climate footprint.
  • Also, on a call with reporters Monday morning, SEC staff members declined to discuss how the new rules would be enforced.

Between the lines: In crafting the new rule, the SEC has had to grapple with the near certainty that it will be challenged in court, which could result in a more cautious approach.

What they're saying: "I believe the SEC has a role to play when there's this level of demand for consistent, comparable information that may affect financial performance," SEC Chairman Gary Gensler said.

The other side: Hester Peirce, the SEC's lone sitting GOP member, said the plan is outside the commission's lane and expertise.

"This proposal steps outside our statutory limits by using the disclosure framework to achieve objectives that are not ours to pursue and by pursuing those objectives by means of disclosure mandates that may not comport with First Amendment limitations on compelled speech," she said in her statement.

Editor's note: This story has been updated to show the vote was 3-1 on Monday.

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