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SEC Proposes Publicly Traded Companies Disclose Emissions, Climate Risk

Publicly traded companies, required to reveal their intake and output of money, may soon have to disclose the same for carbon dioxide. The Securities and Exchange Commission proposed a new rule March 21, that would require large businesses to issue regular reports on greenhouse gas emissions caused by their operations and possible climate-related financial risks.

The rule is currently being made available for public comment. If taken up, it could take effect between 2024 and 2026, according to information published on the SEC’s website. The French news agency AFP noted that the emissions-reporting proposal is similar to efforts taken by regulators in Japan and Europe.

The proposed rule would require relevant businesses to disclose three different “scopes” of greenhouse gas emissions. Scope 1 emissions are those caused directly by a company’s own operations—carbon dioxide from a steel mill, for example. Scope 2 emissions are those indirectly caused by purchasing energy from a greenhouse gas-producing source, like electricity from a coal-powered energy plant, and Scope 3 emissions are those caused indirectly in a company’s value chain, including energy sold to another business.

The SEC noted that the current proposal would provide an exemption from Scope 3 emissions disclosure for smaller companies. SEC Chair Gary Gensler, in a statement accompanying the proposal, said the new rule would be in line with the SEC’s mandate to protect investors from risky investments. “Investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions,” said Gensler.

The proposal was criticized by Hester Pierce, the only Republican on the SEC, who voted against the proposal and argued that it privileges the perspective of “stakeholders for whom a company’s climate reputation is of equal or greater importance” than its financial performance.

In a statement, National Association of Manufacturers President Jay Timmons tentatively agreed with Gensler on the utility of climate-risk disclosures but stopped well short of an endorsement. He also said his organization would work with the SEC to make sure the disclosures are useful information.

“Manufacturers support key disclosures related to publicly traded companies’ climate strategies, as this information can help shareholders make informed decisions,” said Timmons. “However, broad, sweeping disclosures could be counterproductive—requiring manufacturers to waste time and resources reporting irrelevant information that will not be decision-useful for shareholders,” he added.

Source: Industry Week, 03.23.2022

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