The federal government will require some of the largest publicly traded companies to disclose their levels of greenhouse gas emissions under a new rule from the Securities and Exchange Commission (SEC).
The SEC voted 3 to 2 on Wednesday to require large companies to tell investors about greenhouse gas emissions directly caused by their business if that information would be likely to influence someone’s decision on whether to invest.
The rule will also require all publicly traded companies to disclose ways in which climate change poses significant risks to their business.
The rule represents a massive — and contentious — step in terms of what companies are required to tell potential investors about their vulnerability and contribution to climate change.
But it is significantly scaled back from what the agency proposed in 2022. That rule would have required all public companies to disclose their direct emissions, and also made some companies report emissions from their supply chains and the use of their products.
Instead, as part of an effort to lighten the burden for companies, the SEC will only make large and mid-size companies report their emissions that come from generating the electricity a company uses. They’ll have to report emissions for their fiscal years that start in 2026 and 2028, respectively.
The SEC also dropped a provision that would have required companies to report the emissions generated by products they sell, which would have made oil companies, for example, responsible for reporting carbon emitted when their product is burned. That decision handed a major win to opponents of the initial proposal.
In a statement on Wednesday morning, SEC Chair Gary Gensler framed it as a measure that “benefits investors and issuers alike,” giving investors a clear apples-to-apples of different companies’ contributions and exposure to climate risk, and giving companies a clear standard to meet.
While Gensler said the agency had no role in reducing climate risk — a potential role that Republicans have portrayed as the government picking winners and losers — he argued that the rule would help investors “decide what risks to take.”
SEC Commissioner Hester Peirce, a Republican appointee who opposed the rule, argued that the rule gives climate change unnecessary special treatment.
She added the oncoming slew of climate-related disclosures will “overwhelm investors, not inform them.”
The rule also created a new list of qualitative disclosures, which force companies to tell investors what they’re doing about climate change.
Under the rule, businesses will also have to share their climate-related goals, including plans they are undertaking to to transition off of fossil fuels. They must also disclose internal processes set by management to oversee their climate plans if those actions are expected to have significant impact on their business.
In a blow to some business trade groups, the agency also decided to keep the climate disclosures legally binding, a step that opens up companies to legal liability if they misstate their emissions.
The fact that the SEC is directly confronting emissions marks a sea change in the agency’s approach, Sonia Gupta Barros, an attorney at Sidley Austin LLP who served as a regulator from 2004 to 2021 with the SEC’s disclosure review program, told The Hill.
While the SEC took steps in 2010 toward the idea that climate-related information might be material to investor decisions, greenhouse gas emissions weren’t a big area of focus at the agency until 2021.
In the interim, however, much changed in the industry, Gensler said.
“Far more investors are making investment decisions that are informed by climate risk, and far more companies are making disclosures about climate risk,” Gensler said.
About 90 percent of the Russell 1000 issuers — the 1,000 biggest stocks on the Russell index — make some form of climate disclosure, and nearly 60 percent provide information about their greenhouse gas emissions.
In their comments to the SEC on the draft rule, investors large and small “have indicated that they are making decisions in reliance on [climate risk] information,” Gensler said.
“It’s in this context that we have a role to play with regard to climate-related disclosures,” he added.
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