About the Proposed Rules
The US Securities Exchange Commission (SEC) has proposed rules that would require businesses to disclose greenhouse gas emissions and detail how they are impacted by climate change. The reasoning for this disclosure is a result of investor requests for details around the risks associated with climate change. Enacting this proposal would help businesses to disclose risks more efficiently and effectively and meet the requests from investors.
Investor Support and Expectations
Public companies have been required to disclose risks and performance through SEC filings. However, the newly proposed disclosures would provide investors with information to properly assess risk when making investment decisions relative to climate change. This decision for climate-related disclosure is much anticipated and highly advocated for by investors as they have historically sought detailed disclosure to determine any risks climate change and climate change-events may pose to their investments.
What These Rule Changes Mean for Your Business
While the rules still require approval, should they pass, companies would be required to disclose any potential risks to their operations due to location in an area prone to potential climate change events. Companies would also need to disclose data on their own greenhouse gas emissions, the amount of energy they consume, and report it in a way that is consistent with SEC guidelines and regulations.
These rules would require the disclosure of Scope 1 (direct greenhouse gas (GHG) emissions) and Scope 2 (indirect emissions from purchased electricity or other forms of energy) emissions by a company’s suppliers and customers. Scope 3 (GHG emissions from upstream and downstream activities in its value chain) emissions would also require disclosure.
The new rules would be phased-in over time to encourage the dependency and reliability of GHG emissions for investors and disclosures. This feature of the rules has been met with challenges from US Chamber of Commerce, among others. The earliest expected disclosures would be submitted in 2024.
