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U.S. Securities and Exchange Commission Chairman Gary Gensler gave a forceful defense of new rule proposals that would require public companies to disclose their greenhouse gas emissions in their annual reports, along with risks related to climate change in a speech Tuesday.
Gensler pointed to data showing that roughly 70% of companies in the Russell 1000 index
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are publishing sustainability reports that include information about climate risks, and the SEC’s new rule making push is largely about creating standards companies must follow when disclosing this information.
“It makes sense to build on what so many companies are already doing to enhance the consistency, comparability, and decision-usefulness of these disclosures for investors,” Gensler said Tuesday at a virtual event organized by Cerus, a sustainability-focused investor group.
The rules, formally proposed by the SEC last month, would require public companies to disclose how climate-related risks will materially impact their businesses in the short or long term, how they plan to identify and manage climate risks, and whether they have a transition plan in place to deal with climate change.
The new regulation would also require companies to disclose their direct or “Scope 1” greenhouse gas (GHG) emissions emitted from facilities or vehicles directly owned by the company. Additionally, companies will have to report GHG emissions that result from the purchase of electricity and other forms of energy, known as “Scope 2” emissions.
The most controversial aspect of the rule proposal relates to Scope 3 emissions, or greenhouse gases released by a company’s customers in their use of a company’s product and by a company’s suppliers in the process of creating inputs.
As proposed, the SEC’s rule would not require Scope 3 emissions disclosures unless the company has set a GHG emissions goal that includes Scope 3, or if Scope 3 emissions are “material” to the company’s financial performance. U.S. case law says that information is material if there is a substantial likelihood that a reasonable investor would think that information necessary when determining whether to buy or sell a security.
