The US Securities and Exchange Commission (SEC) has enacted a new regulation mandating some public companies to disclose their greenhouse gas emissions and climate change-related risks.
The rule voted to pass on Wednesday aims to provide investors with more transparent and standardized information regarding the financial implications of climate-related risks on companies' operations.
(Photo : ROBERT ATANASOVSKI/AFP via Getty Images)
SEC Adopts Standardized Climate-Related Disclosures
Under the new SEC regulation, companies must report their Scope 1 and 2 emissions, which encompass direct operational emissions and energy usage.
However, emissions falling under Scope 3, such as those generated throughout supply chains or by customer usage, are excluded from the reporting requirements.
In a press release, the SEC emphasized the need for enhanced climate-related disclosures to meet investors' demands for consistent and reliable information.
SEC Chair Gary Gensler highlighted the importance of transparency in financial reporting, emphasizing the commission's commitment to ensuring investors receive comprehensive and truthful disclosures.
"Our federal securities laws lay out a basic bargain. Investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called 'complete and truthful disclosure,'" said Gensler.
"Over the last 90 years, the SEC has updated, from time to time, the disclosure requirements underlying that basic bargain and, when necessary, provided guidance with respect to those disclosure requirements," he added.
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Disclosing Climate-Related Risks
The regulations will require companies to disclose various aspects of climate-related risks, including their impact on business strategy, financial condition, and operational outlook.
Additionally, companies must provide details on mitigation or adaptation activities undertaken to address these risks, associated expenditures, and impacts on financial estimates.
The SEC's decision to include climate risk disclosures in company filings, such as annual reports and registration statements, aims to improve the reliability and accessibility of this information for investors.
The SEC intends to give investors more precise insights into companies' climate-related risks and mitigation efforts by standardizing reporting requirements.
Before finalizing the rules, the SEC reviewed over 24,000 comment letters, thoroughly considering stakeholders' feedback.
"The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements. Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today," Gensler noted.
"They will also require that climate risk disclosures be included in a company's SEC filings, such as annual reports and registration statements, rather than on company websites, which will help make them more reliable," he added.
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