The U.S. Securities and Exchange Commission (SEC) is poised for a pivotal vote on Wednesday that could redefine how companies listed in the U.S. report their climate-related risks. This long-anticipated move seeks to bring uniformity to the disclosure of greenhouse gas emissions, the financial implications of climate change, and expenditures on transitioning towards a greener economy.
Under current U.S. securities laws, there are no standardized mandates for reporting climate-related information, leading to a patchwork of disclosures based on companies’ discretion. The SEC argues that standardized information is vital for investors’ decision-making processes.
“As an investor, we expect full transparency about a company’s fundamentals, especially climate-related risks that pose serious negative financial consequences,” stated Dan Chu, Executive Director of the Sierra Club Foundation. He emphasized the necessity of stringent standards for climate risk disclosure to allow investors to make informed decisions.
The proposed rules, which were first introduced two years ago, aim to align with similar mandates in Europe and California. However, they’ve encountered resistance from various quarters, including businesses and Republican officials, who argue that such regulations exceed the SEC’s authority and impose undue burdens.
Reports suggest that the SEC may have tempered aspects of the proposal in its final iteration, particularly around the contentious “Scope 3” emissions, which relate to a company’s supply chain. This adjustment could potentially bolster the rule’s legal defensibility.
Despite these modifications, many within the Democratic Party and environmental circles fear that diluting the rules could undermine their effectiveness. The SEC, however, has not commented on these adjustments.
The landmark regulation, once enacted, would mandate publicly traded firms to provide extensive details on how climate change impacts their operations and their contributions to the issue. While many corporations already volunteer such information, the SEC’s rule seeks to standardize these disclosures.
“You can’t manage a problem if you can’t measure a problem, and this will be an important step in that direction,” said Steven Rothstein, Managing Director of Ceres.
The SEC’s decision comes amid reports that it has scaled back its initial ambitions, particularly regarding Scope 3 emissions, which encompass emissions not directly produced by the company but are associated with its supply chain and product usage. SEC Chairman Gary Gensler previously acknowledged that debates over Scope 3 emissions had delayed the rule’s finalization.
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