Show Me The Emissions: Let’s Talk SEC Climate Reporting
The US Securities and Exchange (SEC) yesterday proposed new rules that could require companies to annually report on how much greenhouse gas emissions (GHG) they are producing and how climate risk affects their business under new rules.
Under the proposal by Wall Street’s top regulator, public companies would have to report on their climate risks, costs associated with transitioning away from fossil fuels, risks related to the physical impact of storms, drought, and higher temperatures elicited by global warming on their 10-K forms. The days of companies glorifying themselves on Twitter about their progressive moves away from carbon emissions are over, as they will now have to report their progress alongside their climate goals.
The SEC issued voluntary guidance in 2010 and many companies have since provided climate-risk information, as well as GHG emissions data, however, without clear requirements enforced for reporting, it remains challenging to compare companies within industries and sectors. For example, Ford displays emissions from its entire fleet of vehicles and what is generated in the production of cars, whereas Tesla reports emissions for just its Model 3 products, according to The Washington Post. Under the new digestible guidelines, “companies and investors alike would benefit from the clear rules of the road” stated by SEC Chairman, Gary Gensler.
However, unsurprisingly, this new proposal has been welcomed with backlash since being released yesterday. Republican leaders and business groups say that the SEC doesn’t have the authority to regulate climate reporting, and have announced plans to challenge the SEC in court. In a letter to Gensler, Republican representatives argue that emissions disclosure are not “material” to investors’ decisions on buying or selling equities, and the actual intent of the rule “is to fight climate change.”
So, what’s next? The proposed rules have been made open to the public for 60 days and they could be altered before any final adoption within months, pending legal setbacks. The new standardized process will be sure to enhance clarity to businesses on disclosure requirements and also provide more transparency for the investors where ESG matters drive decision-making.
Hamish Bailieu, Associate, Venture
Emissions generated by a company and its energy use — scope 1 and scope 2 emissions — must be disclosed. Indirect emissions generated by a company’s suppliers and customers — scope 3 — must be disclosed if they are material to a company’s performance or if the company has set targets for reducing emissions. All disclosures would be phased in, with a legal safe harbor for scope 3 disclosures. Smaller companies would be exempt from scope 3 disclosure.
From AI to blockchain, ‘ESG tech’ providers are helping organizations respond to investor demands for transparency. Platforms like GHGSat use satellites to measure greenhouse gas emissions at different commercial sites, while the likes of Tracr use blockchain to track diamonds from mine to jeweler, providing an auditable supply chain. And of course, it would be remiss of me not to mention FWP’s very own YvesBlue, which provides sustainability metrics across an investor’s entire portfolio.
Want to get a little nerdy and dive into the SEC’s proposed rule? Check it out here.
This newsletter is intended solely for informational purposes, and should not be construed as investment/trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any reproduction or distribution of this document, in whole or in part, or the disclosure of its contents, without the prior written consent of Flat World Partners is prohibited
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