US companies may finally have to admit their carbon emissions under new SEC rule

New rule could stop firms from ‘greenwashing’

Josh Marcus
San Francisco
Tuesday 22 March 2022 05:08 GMT
Landmark IPPC report reveals scale of the climate crisis

Some of the most powerful companies in America, and thus the world, may finally be forced to disclose how much their businesses are impacting the climate crisis, according to a proposed rule from the Securities and Exchange Commission.

The proposal, which the SEC approved for consideration on Monday, would create a uniform framework that requires all publicly traded companies to measure their greenhouse gas emissions, evaluate the material risks they face from the climate crisis, and share that information with the public and financial regulators.

Environmental advocates hailed the new rule, which now goes into a two-month public comment period before the SEC gives it a final vote.

“Markets are an indispensable tool that we must leverage in order to make the transition from fossil fuels to cleaner energy at the pace scientifically necessary to prevent climate catastrophe,” representative Sean Casten, a Democrat from Illinois, who is a sponsor on the related Climate Risk Disclosure Act in the House, said in a statement. “I urge the SEC to thoroughly evaluate feedback on the proposal issued today to ensure the strongest possible final rule.”

The new rule will provide a more concrete way to get companies to go green, according to Bill Weihl, a former sustainability executive at Google and Facebook.

“It will make it possible for all interested stakeholders, including shareholders, to then push companies to take real action,” he told The New York Times on Monday.

All companies covered under the proposal, which passed with a 3-1 vote from SEC commissioners, would be required to disclose how much greenhouse gas emissions their business creates, including from the electricity they use and vehicles involved in their operations.

Larger companies are required to have their numbers vetted by an outside auditor, and to disclose so-called scope 3 emissions, which measure the carbon footprint of a company’s suppliers and customers.

Perhaps most crucially for green investors, the new rule mandates that companies that have made carbon pledges detail how they will achieve them, and disclose technical details on how much they plan to rely on carbon offsets or a specific internal benchmark to price carbon impacts.

Both of these facets have come under scrutiny from environmentalists who argue companies often engage in “greenwashing” and use these factors to overstate the impact of their environmental work.

“Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures,” SEC chair Gary Gensler said in a statement. “Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognise that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.”

Going green may now be vogue in some corners of the corporate world, such as Silicon Valley, but a lack of uniform reporting standards has made meaningful comparisons between companies difficult.

For instance, Ford tracks the emissions from its production lines, as well as its customers on the road, while electric-vehicle maker Tesla only tracks production emissions from a single line of its cars, the Model 3.

Others have doubted whether the SEC, a financial regulator, has the appropriate expertise or legal mandate to make such a significant change to environmental policies.

“Setting climate policy is the job of lawmakers, not the SEC,” former SEC chair Jay Clayton, a Trump administration appointee, argued in an op-ed on Sunday in The Wall Street Journal. “Taking a new, activist approach to climate policy — an area far outside the SEC’s authority, jurisdiction and expertise — will deservedly draw legal challenges,” he added.

West Virginia has threatened to challenge the SEC in court if the new policy goes through, arguing the government doesn’t have a “compelling” state interest in forcing firms to make climate disclosures.

If passed, the new rules would be phased in over several years, with the largest firms facing the new requirements in 2023, and the rest the following fiscal year.

Countries like Brazil, Hong Kong, New Zealand, and Switzerland are working on or already require climate disclosures, and Britain and Japan will roll out environmental reporting rules next month.

In 2024, large firms listed on the European stock exchange will also have to report their emissions.

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