Companies will need to reveal detailed information about their greenhouse gas pollution under a new U.S. Securities and Exchange Commission plan, portending a major shift in how corporations must show they are dealing with climate change.
For the first time ever, the agency plans to require businesses to outline the risks a warming planet poses to their operations when they file registration statements, annual reports or other documents. Some large companies will have to provide information on emissions they don’t make themselves, but come from other firms in their supply chain.
The proposal released on Monday sets up a major clash with industry lobbyists and Republican politicians who argue the regulations are outside the SEC’s jurisdiction. Liberal lawmakers, environmental advocates and the SEC, however, say mom-and-pop investors need the information to make informed decisions.
“Over the generations, the SEC has stepped in when there’s significant need for the disclosure of information relevant to investors’ decisions,” SEC Chair Gary Gensler said in a statement. “Today’s proposal would help issuers more efficiently and effectively disclose these risks.”
The SEC would also require that auditors or other experts review the climate disclosures for large- and medium-sized companies. The requirements would be phased in over time.
Climate activists will likely cheer the agency’s decision to require larger companies to disclose some of their so-called Scope 3 emissions, which are generated by other firms in their supply chain or customers using their products. That information, which business groups say is very hard to quantify, wouldn’t be subject to an audit.
Some companies, including oil giant Exxon Mobil Corp., have already begun disclosing those emissions voluntarily.
Hester Peirce, who opposed the plan as the agency’s only Republican commissioner, said the proposal would ultimately end up costing investors.
“Society is in big trouble if we are looking to SEC lawyers, accountants, and economists to dictate how companies should address climate change,” said Peirce, who in a symbolic protest turned off her camera during the virtual meeting, saying that she was trying to reduce her carbon footprint.
Peirce said the proposal “will undermine the existing regulatory framework that for many decades has undergirded consistent, comparable, and reliable company disclosures. We cannot make such fundamental changes to our disclosure regime without harming investors, the economy, and this agency.”
The proposal lacks “a credible rationale for such a prescriptive framework when our existing disclosure requirements capture material risks relating to climate change,” Peirce said.
The release of the proposal follows months of internal debate among the agency’s Democrats over how far to extend the disclosure requirements. Ultimately, the regulator settled on using the longstanding but vague concept of “materiality” to determine what information must be disclosed, a term that the agency hopes could make the rule less vulnerable to legal challenges.
Many of the plan’s elements align with a reporting regime known as the Task Force on Climate-Related Financial Disclosure. That voluntary framework asks corporations to disclose greenhouse gas emissions and report on how they manage global-warming risks. Michael Bloomberg, founder and majority owner of the parent company of Bloomberg News, is chairman of that effort.