Today, the U.S. Securities and Exchange Commission (SEC) announced proposed rule amendments to “enhance and standardize climate-related disclosures” of public companies.
Without mandated disclosure requirements, it’s mostly been up to companies to report voluntarily through a smattering of competing frameworks and methodologies including TCFD, SASB, GRI, GHGP, etc. The proposed SEC rule means the U.S. is following in the EU’s footsteps by linking climate and business impact, specifically through investment risk.
As proposed, the new rules would require public companies to disclose their scope 1, 2, and 3 emissions. Some caveats, though, include a phase-in period for scope 3 disclosures according to filer type, as well the ability to exclude scope 3 altogether in cases where they are deemed immaterial to the business and no climate goal exists.
With the inclusion of scope 3 emissions—though slightly muted—in the rule, it’s a huge win and demonstrates that America is serious about our position on climate change.
Ahead of today’s proposed changes, The Washington Post reported the stark differences in how companies measure and disclose scope 3 emissions because they are challenging to quantify, primarily because of the dispersed activities that cause them and access to reliable data. However, scope 3 emissions often make up to 90% of a business’s emissions, so they’re vital to take into account—anything less would be a failure to take impactful, meaningful action.
The data required to calculate scope 3 emissions falls outside a reporting organization’s operating boundary and onto their value chain—their suppliers, customers, and employees. To quantify scope 3 emissions, companies must rely on their suppliers while also understanding how their products are used. From a practical standpoint, the first thing businesses can do is request emissions data from their suppliers.
Critics of the SEC’s rules call into question the agency’s authority and expertise to review climate data—a flimsy argument. While it could be some time before we see full regulation and quality data coming in, we’re never going to make meaningful progress unless we—as a planet, nation, and economy—do what we can to figure it out along the way.
As we often see in the U.S., progressive states like California push state-level requirements ahead of any federal mandate (the Climate Corporate Accountability Act is a perfect example). While there will be even more pushback against the proposed SEC rules, we can expect other progressive states to follow suit with their own requirements while waiting for accepted federal legislation.
Because the U.S. is long overdue for mandated requirements for listed companies, the new SEC rules could be a massive step in the right direction to move companies towards meaningful climate action.