The SEC wants all public companies to report their carbon emissions
The vast majority of public companies in the U.S. don’t voluntarily disclose their greenhouse gas emissions, obscuring who’s responsible for large emissions and the risks they face from climate change. But that would change under a landmark new rule proposed today by the Securities and Exchange Commission (SEC), which would make it mandatory for all publicly traded businesses to publish standardized reports of their emissions and climate risk for the first time.
“This is information that shareholders have been asking for increasingly over the last 10 years,” says Danielle Fugere, president and chief counsel of the nonprofit As You Sow. As hurricanes, wildfires, droughts, heat waves, and other climate impacts grow, investors want to know how companies are preparing. They also want to understand how companies plan to reduce emissions.
Fewer than one-third of public companies in the U.S. voluntarily disclose their emissions now, and even those that do don’t report their data the same way, making it difficult to compare practices between businesses. But other countries are already making similar disclosures mandatory: In the U.K., new climate-disclosure laws will come into effect next month. Globally, listed companies are responsible for 40% of all climate-related emissions.
In the U.S., the new rule would require all public companies to report on their direct emissions, as well as the emissions from their energy use. Larger companies also will need to have those numbers vetted by independent auditors; and most companies will have to report on indirect, or so-called “Scope 3,” emissions in their supply chains—typically the greatest source of emissions for an average company. Almost all of of its emissions at Apple, for example, come from the suppliers providing parts for its phones and other products. (Apple already voluntarily reports these emissions and last year became the first publicly traded company in the U.S. to say that it supported mandatory disclosures.)
“There is no way to assess climate risk of a particular company without understanding what their full value chain emissions are, and what the risk associated with that is,” Fugere says. “To investors, having that Scope 3 information is important for those reasons, and also for the company to assure that its suppliers are looking at climate risk.”
Some businesses have argued that calculating indirect emissions is too heavy a burden, since it can involve getting data from hundreds of sources. But technology is making the task easier, says Joe Schloesser, senior director at ISN, one company that builds tools to help companies track total emissions. “Technological advancements have allowed for this complex task to be simplified,” he says. “By leveraging these advancements, companies are able to more accurately track their Scope 3 emissions.” The SEC also plans to phase in Scope 3 emissions reporting over time, so companies have time to prepare.
For the growing number of companies announcing net zero goals, understanding the full range of emissions is critical. “We have this explosion of net zero targets and climate targets, which presumably are built on a carbon inventory,” says Isabel Munilla, director of U.S. financial regulation at the nonprofit Ceres. “And so the notion that you would have a climate target, but not have a climate inventory or be able to disclose some type of estimate about your Scope 3 emissions . . . that raises some concern.” For companies that have set climate goals, the proposed rule says that companies will have to explain how they plan to reach their targets and share relevant data.
The disclosures also give companies a place to talk about how they’re innovating to deal with climate risks, which Munilla says can show investors more about their overall strengths. “That suggests that you’re prepared for any swing in the market, be it a pandemic or an oil shock. For some of the investors that I’ve talked to, they’re looking at this as sort of a bellwether of a company that will be overall resilient to market shocks.”
The public will have 60 days to comment on the proposed rule, and then the agency will vote on a final version within the next several months. If enacted as is, large companies would have to start disclosing climate risks next year, followed by emissions data in 2024, while smaller companies will get an extra year.
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