Climate Risk Disclosure Would Be Required of Companies Under Proposed SEC Rule
The risks posed by the climate crisis are far-reaching, and in order to begin to ameliorate those risks, quantifying them can be helpful. Until now there hasn’t been a clear rule governing the disclosure of climate risks by businesses, but it looks like the Securities and Exchange Commission (SEC) is about to change that.
Public companies in the U.S. are required to provide detailed annual reports to regulators and their investors with information about the companies’ financial performance and risks. The SEC has proposed a new rule that would require public companies to also disclose their greenhouse gas emissions, as well as how their businesses are affected by climate risks.
Under the new proposal adopted by the SEC, public companies would have to disclose risks such as those related to global warming-induced temperature increases and drought, storm impacts and fossil-fuel divestment costs, The Associated Press reported. They would also be required to map out how they propose to meet their climate goals and report their progress, put forth their transitional climate risk management plans and report the financial impacts of severe weather on their businesses.
The purpose of the proposed rule is to protect investors by providing them with information that will allow them to see how companies stack up against each other with regard to climate risks to their businesses.
It is the first time the SEC has proposed a mandatory rule for disclosure of climate risks by companies.
“Investors can only assess risks if they know they exist,” said consumer campaigns director of the U.S. Public Interest Research Group Mike Litt in a statement, as reported by The Associated Press. “Americans’ retirement accounts and other savings could be endangered if we don’t acknowledge potential liabilities caused by climate change and take them seriously.”
If the plan is enacted, companies will have to provide the climate risk information in their stock registration statements and annual reports, The New York Times reported. The proposed plan will be open to public comment for 60 days.
“It will make it possible for all interested stakeholders, including shareholders, to then push companies to take real action,” said Bill Weihl, leader of ClimateVoice, a group that encourages employees to speak up for climate actions, as reported by The New York Times.
Under the new rule, companies would have to report emissions that the companies produce either directly or indirectly, The Associated Press reported. Examples of indirect production of greenhouse gas emissions would be those that are the result of product consumption, business travel by company employees, the energy used in the growing of raw materials and the use of vehicles in the transportation of products.
It has been estimated by investor groups and climate activists that indirect emissions account for about 75 percent of the greenhouse gas emissions produced by companies.
According to SEC chair Gary Gensler, companies and investors have pushed for climate risk data and the SEC is responding, reported NPR.
“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,” Gensler said, as NPR reported. “That principle applies equally to our environmental-related disclosures.”
The Environmental Defense Fund and the Sierra Club supported the proposed rule and said it should be adopted, The New York Times reported.