The federal government will require some large publicly traded companies to disclose their greenhouse gas emissions under new Securities and Exchange Commission (SEC) rules.
The SEC on Wednesday approved a bill that would require large companies to tell investors about greenhouse gas emissions directly attributable to their operations if that information could affect their decision to invest. It passed with a majority of 2 to 2.
The rules will also require all publicly traded companies to disclose how climate change poses material risks to their businesses.
The rules are a major and controversial step in that companies will be required to tell potential investors about their vulnerabilities and contribution to climate change.
However, it was significantly scaled back from what the agency had proposed in 2022. The rules will require all publicly traded companies to disclose their direct emissions, and some will also be required to report emissions from their supply chains and the use of their products.
Instead, in an effort to ease the burden on companies, the SEC will require only large and midsize companies to report the emissions associated with generating the electricity they use. They must report emissions for fiscal years starting in 2026 and 2028, respectively.
The SEC also removed a provision that required companies to report emissions from the products they sell. This would make oil companies, for example, responsible for reporting the carbon emitted when their products are burned. This decision was a major victory for opponents of the original proposal.
SEC Chairman Gary Gensler said in a statement Wednesday morning that this is a measure that will “benefit investors and issuers alike,” and will encourage investors to recognize the contributions of various companies and address climate risks. Enable exposures to be clearly compared and provide companies with clear information. Standards to be met.
Gensler said there is no role for government agencies in mitigating climate risks (a potential role Republicans have portrayed as the government picking winners and losers), but the rule does not allow investors to It claimed it would help “decide what risks to take.”
SEC Commissioner Hester Peirce, a Republican appointee who opposed the rule, argued that the rule gave unnecessary special treatment to climate change.
He added that a flood of future climate-related disclosures would “overwhelm investors and leave them uninformed.”
The rule also created a new list of qualitative disclosures that would force companies to tell investors about their efforts on climate change.
The rules also require companies to share their climate-related goals, including how they plan to transition away from fossil fuels. Companies should also disclose the internal processes that management has in place to oversee climate change plans if those actions are expected to have a material impact on their business.
In a blow to some industry groups, authorities also decided to make climate change disclosures legally binding, meaning companies could be held legally liable if they misrepresent their emissions. become.
The fact that the SEC is directly confronting emissions signals a major change in the agency’s approach, says Sonia, an attorney at Sidley Austin LLP who served as regulator on the SEC’s disclosure review program from 2004 to 2021. -Gupta Barros told The Hill.
Although the SEC took steps in 2010 toward the idea that climate-related information can become important to investor decision-making, greenhouse gas emissions will not be a major focus area for the agency until 2021. There wasn’t.
But in that time, Gensler said, much has changed in the industry.
“Far more investors are making investment decisions based on climate risk, and far more companies are disclosing about climate risk,” Gensler said.
About 90 percent of Russell 1000 issuers, the top 1,000 stocks in the Russell Index, provide some form of climate disclosure, and nearly 60 percent provide information about their greenhouse gas emissions.
In comments to the SEC on the draft rule, large and small investors “indicated that they base their decisions on the following criteria:” [climate risk] Information,” Gensler said.
“In this context, we have a role to play regarding climate-related disclosures,” he added.
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