Proposed SEC Rules on Climate Disclosure: what does it mean for business?

By: Emma Abrams

In 2022, the US Securities and Exchange Commission (SEC) proposed new rules on the climate disclosures required of publicly traded companies. These new rules would require registrants to report the following:

• The company’s management and governance of climate risks
• Climate risks identified by the company, and possible impacts on business 
• Whether or not the company has adopted a transition plan, and a description of the plan
• If the company has set a public climate target or goal, they must report their progress towards this goal.
• The registrant’s direct direct (Scope 1) and indirect (Scope 2) GHG emissions, not including offsets and
• Indirect emissions from upstream and downstream activities in the value chain (Scope 3); all in absolute terms and in terms of intensity (per unit of economic value or production)

The inclusion of Scope 3 emissions in required reporting is the biggest change from current requirements. Reporting scope 3 is essential, as a majority of a company’s carbon impact can be traced to their supply chain. These new reporting requirements will be phased in over the next few years. Larger companies have until fiscal year 2024 (filed in 2025) to report Scope 3 emissions, and smaller reporting companies are exempted from reporting Scope 3 but must begin reporting all other proposed disclosures in Fiscal year 2025 (filed in 2026). 

Large corporations would have to rely on smaller consulting firms, like Emerger Strategies, for the necessary analyses. This added expense has caused backlash, and the SEC has delayed the approval of the proposal. The proposal may be weakened, including cutting out scope 3 requirements. However, about 70% of companies report intentions to comply with the new SEC rule regardless of when it becomes final. With more public awareness about climate change, many investors are starting to ask for climate-related reporting from the companies they invest in. 

The SEC isn’t the only organization passing new climate disclosure requirements. The state of California is also pushing legislation that would require companies that do business in California with at least $1 billion in revenue “to annually report their emissions to the public”. Although similar to the SEC proposal, this law would apply to both privately owned and publicly traded companies.

Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets says that “it’s important to understand that even if this bill doesn’t pass, you will have other disclosure requirements that will be kicking in”. For example, the Europe Union’s  Corporate Sustainability Reporting Directive was entered into effect earlier this year. It will require reporting on a company’s impacts on sustainability matters.This directive will impact more than 50,000 companies, including US companies with any operations within the EU. 

Between new regulations and pressure from investors and the public, more and more companies will need to start assessing their carbon footprint and create goals to reduce their emissions. Is your business looking to measure their climate impact and become a more sustainable practice? You can learn more about our Sustainability Consulting Services on our website or contact us today!

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