The United States Securities and Exchange Commission issued a rule proposal that would enact new climate-related disclosure requirements on public companies, requiring disclosure of greenhouse gas emissions and the business risks of severe weather events as well as issues relating to lower carbon footprint transition. See The SEC claims this will assist investors in obtaining information concerning climate risks that public companies will face. All the Democratic members voted in favor of the proposals while the one Republican commissioner dissented.

The proposed rules would divide reporting into three “Scopes.” Scope 1 and Scope 2 would relate to emissions, and be tied to public companies’ direct and indirect emissions linked to operations and energy purchases. There would also be Scope 3 emissions regarding other’s outside the Company’s control. Scope 1 emissions relate to direct greenhouse emissions from company controlled or owned, such as fuel combustion; Scope 2 is about indirect emissions relating to the purchase of electricity, steam, heat, or cooling; and the most controversial one—given the difficulty in measuring it– Scope 3 emissions concern the company’s environmental impact to include its suppliers and customers who use its products.

Public companies will also have to report the definite or possible material effects of climate risks on their business, strategy, and expenditures. Further, these companies must also disclose their metrics to investors, essentially, the “numbers” behind the information. Risks will include
severe weather events, transition risks (strategy changes), policies, or investments to reduce carbon reliance, among other things.

If enacted, these requirements would be phased in for companies relating to size and filing status, with Scopes 1 and 2 being first in one fiscal year. Smaller companies would also be exempt from Scope 3, as a safe harbor. Companies would also need an independent attestation for these disclosures. Of course, the proposed rules may be changed after the comment period, and that period will be the longer of 30 days after date of publication in the Federal Register or May 20, 2022.

In short, the SEC has entered the world of climate change in a significant way. As such, those interested should consider commenting, and being part of the debate.