SEC Pushing Mandatory Disclosures of Climate Change Risk

Issue 115

The Federal Government proposed stringent requirements for publicly traded companies to report information on greenhouse-gas emissions and risks related to climate change, in one of the Biden administration’s potentially most significant environmental actions to date. Members of the Securities and Exchange Commission voted 3-1 to issue the proposal, which will be open for public comment for at least two months before the agency will begin work on a final rule. Commissioners voted along party lines, with all three Democrats backing the proposal.

Securities and Exchange Commission Headquarters - Washington, DC (Source: Getty Images)

The mandate was formally offered on Monday with a 534-page proposal that would force publicly traded companies to report greenhouse-gas emissions from their own operations as well as from the energy they consume and to obtain independent certification of their estimates. In some cases, firms also would be required to report greenhouse-gas output of both their supply chains and consumers, known as Scope 3 emissions. Companies would have to include the information in SEC filings such as annual reports.

The proposal comes as President Biden’s efforts to address global warming through legislation have stalled in Congress, putting pressure on regulatory agencies to deliver on a core Democratic priority.

“Investors and businesses have for years asked for reliable information that can be used to assess climate-related risks and opportunities,” Treasury Secretary Janet Yellen stated recently, also stating that the rule will help safeguard investors and increases the country’s financial system’s resilience. Ms. Yellen, who leads The Financial Stability Oversight Council, had formally declared climate change an emerging and growing risk to U.S. financial stability earlier last year.

While many different members of Congress, as well as energy and transportation companies, have been a staunch opponent of serious disclosure requirements surrounding climate change and environmental effects, other industries, activists, and investor groups have shown strong support for the proposal. The Investment Company Institute, which represents asset managers, said it was pleased with several aspects of the SEC proposal while saying it will “carefully study” other aspects.


Source: Brookfield Brief