E for Environment? SEC’s Proposed Carbon Disclosure Rule
Last month the Security and Exchange Commission (SEC) proposed a new rule that would require public companies to disclose climate-related information. The SEC is looking to enhance climate-related disclosure policies by making it an industry standard to provide specific information regarding climate risks and environmental impact.
In the past, many companies have voluntarily provided similar climate related information, but this would be the first rule that would mandate businesses to report their greenhouse gas emissions and provide details on how climate change is affecting its operations. The SEC has proposed this rule in response to demand for consistent information on the impacts of climate change on the financial performance of companies. Specific provisions are still being debated, but this rule stands to provide transparency for investors and companies alike.
Who Stands to Benefit?
Currently, it is difficult for investors to compare carbon disclosure statements as they are often inconsistent and can lack relevant information. With a regulatory framework, investors would have access to standardized information so that carbon disclosure statements can be easily compared and accurately judged.
In addition to this, companies would be required to provide information on climate related risks and how these risks may impact their consolidated financial statements and future operations. Such information will greatly assist investors in their assessment of climate related risks and how they will act in response.
These disclosure rules are also seen as a necessary step to meet set climate goals and positively contribute to sustainable development. By mandating this kind of action, companies and investors alike will need to be aware of their impact on the climate and the challenges they are likely to face due to the crisis. Such awareness will allow for more mindful decision making that will help the corporate sector in their response to climate change.
Challenges to Implementation
Scope 3 emissions have proved to be especially controversial, with many seeing the effort to calculate the emissions generated by suppliers and consumers as being too burdensome to mandate a company to undertake. Corporate groups have also opposed the inclusion of Scope 3 emissions, stating that there is no agreed upon methodology for calculating them.
Various compromises have been proposed in order to prioritize accurate and consistent disclosure of Scope 1 and 2 emissions. However, there are concerns that this will allow companies to mislead investors. Investors have taken note of this, demonstrated by the fact that 65% of investors who submitted comments to the SEC regarding this proposed rule, supported the inclusion of Scope 3 in disclosure statements.
Even without Scope 3 emissions, public companies would still need to take significant action to be in compliance with the proposed rule. Companies would have to dedicate significant time and resources in order to develop disclosure and accounting controls. Some groups have accused the SEC of overstepping, but for those who are concerned about climate change impacting the financial market, this is seen as a welcome step that will enable individuals to be better informed and make decisions based on accurate and consistent information.
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About RyeStrategy
Based in Seattle, RyeStrategy is a CDP-accredited, mission-oriented company specialized in carbon accounting, mitigation coaching, and climate disclosure solutions for organizations at any point in their sustainability journey. Learn how RyeStrategy helped Salesforce, Ideascale, and Wazoku achieve their sustainability goals.
From exhaustive carbon footprinting and mitigation coaching, to setting science-based targets and reporting climate data to CDP, SBTi or custom reporting platforms, RyeStrategy acts as a hands-on extension of the team, custom-tailoring services to fulfill climate disclosure requirements easily and accurately.
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