SEC Proposal Would Require Corporations to Share Climate Change Impact Details

The Securities and Exchange Commission is set to advance a controversial proposal on Wednesday that would require corporations to disclose their role in contributing to climate change and the risks posed by global warming to their operations. This proposal, which has faced significant opposition from industry groups and has been delayed for over a year, is a less comprehensive version of the SEC’s original plan. The original plan aimed to hold public companies accountable for not only their own emissions but also those across their supply chains.

Implications for Companies and Investors

The proposed rule has sparked intense interest, drawing approximately 16,000 comments from various stakeholders including companies, trade groups, investors, and climate activists. If implemented, the rule would have significant implications for companies, as they would be required to disclose losses resulting from extreme weather events linked to climate change, such as severe storms, wildfires, and rising sea levels. Additionally, companies would need to report their climate-related expenditures, such as investments in carbon offsets and renewable energy credits.

Furthermore, the rule would mandate large firms to report their greenhouse gas emissions from their own facilities that are deemed "material" or relevant to investors. However, the requirement to report emissions from customers and suppliers, known as “Scope 3” emissions, has been omitted from the proposed rule.

Reactions to the Proposal

Climate advocates have expressed disappointment over the exclusion of Scope 3 emissions reporting, citing the significance of such emissions, which can constitute up to 75 percent of overall emissions. On the other hand, many business groups have criticized the SEC for overstepping its authority and using its regulatory power to pressure companies into reducing their carbon footprints.

The oil and gas industry, in particular, has strongly opposed the draft rule, arguing that it unfairly targets their sector, a major contributor to climate-warming emissions. Additionally, some Republicans have vehemently opposed regulations that seek to integrate climate change into corporate decision-making processes and have even threatened legal action against firms that prioritize climate risks in their investments.

Global Regulatory Landscape

While the SEC’s proposed rule is facing resistance domestically, other jurisdictions such as California, the European Union, and China have already developed or are in the process of implementing their own stringent climate disclosure regulations. For instance, California recently enacted a law requiring large companies operating in the state to disclose their supply chain emissions, a move that has been met with legal challenges.

Similarly, European regulations mandate reporting on emissions and climate risks, a requirement that will affect numerous American companies operating in the region. The global trend toward more rigorous climate disclosure standards is expected to impact an increasing number of U.S. companies operating in jurisdictions with stringent reporting guidelines.

Timeline for Compliance

If the SEC rule is approved, large public companies would need to commence reporting their financial exposure to climate-related risks by 2025, with emissions disclosure requirements coming into effect by 2026. Smaller corporations would be granted a longer timeframe for compliance.