The SEC Launches Proposal to Enhance and Standardize Climate-Related Disclosures for Investors.
Yesterday, The U.S. Securities and Exchange Commission (SEC) launched their proposal of a new set of rules to enhance and standardize climate-related disclosures for investors. This would be one of the first and largest regulatory shifts around climate disclosures and reporting that the United States has ever encountered. This is very likely only the beginning of massive shifts coming to the US around sustainability and climate change.
“I am pleased to support today’s proposal because, if adopted, it would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers,”
In summary, this set of rules would require organizations to disclose information around climate risk and, “for registrants that already conduct scenario analysis, have developed transition plans, or publicly set climate-related targets or goals, the proposed amendments would require certain disclosures to enable investors to understand those aspects of the registrants’ climate risk management.”
This means that those who meet that criteria above would be required to dive deeper into their organization’s carbon footprint, including scope 1, 2, and even in some cases, scope 3 greenhouse gas emissions using widely accepted frameworks such as the TCFD and Greenhouse Gas Protocol. As defined in the SEC’s press release,
“The proposed rules also would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a registrant would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions.”
To learn more about Scope 1, 2, and 3 emissions accounting, Sustaira has a webinar coming up next week that will dive deeper into defining what scope 1, 2 and 3 are, why this is important, and will explore how organizations can start calculating and measuring their impact using Sustaira’s agile Carbon Accounting solution.
In terms of risk, organizations would need to disclose climate related risks and how they might manage those risks, along with how those risks could affect the organization over time in terms of materiality. This goes even deeper into requiring how those risks may affect strategy, business model and outlook. Last but not least, these rules would require disclosures around the impact that climate related events may have on the financials of the organization. You can read the full overview here.
According to Reuters, there will likely be some pushback to these long anticipated proposed rules from the SEC. The biggest pushback stemming from the complexity of Scope 3 and the lack of “agreed methodology for calculating scope 3 missions.” This is not a surprise, however it’s becoming more clear that regulations are likely coming soon to the US. Organizations will need to begin measurements of their scope 1, 2 and 3 greenhouse gas emissions with what is currently available in order to keep up with demand from external stakeholders to disclose climate related impacts.
Ultimately, these proposed regulations would have a phase-in period for all registrants and those who would need to disclose around scope 3 would have a secondary phase-phase in period to include that information. This gives organizations a little time to aggregate data and be sure they are meeting these new regulations.
Sources:
Johnson, Katanga. “U.S. SEC Proposes Companies Disclose Range of Climate Risks, Emissions Data.” Reuters, Thomson Reuters, 21 Mar. 2022, https://www.reuters.com/legal/litigation/us-sec-set-unveil-landmark-climate-change-disclosure-rule-2022-03-21/.
U.S Securities and Exchange Commission. “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors.” SEC Emblem, 21 Mar. 2022, https://www.sec.gov/news/press-release/2022-46.
