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Economy

The SEC wants companies to disclose how climate change is affecting them

Vice President Kamala Harris looks at a hyperwall during a climate change discussion at the National Aeronautics and Space Administration (NASA) Goddard Space Flight Center in Greenbelt, Md., on Nov. 5 , 2021. The SEC unveiled new proposals on Monday requiring companies to disclose climate-related risks.
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AFP via Getty Images
Vice President Kamala Harris looks at a hyperwall during a climate change discussion at the National Aeronautics and Space Administration (NASA) Goddard Space Flight Center in Greenbelt, Md., on Nov. 5 , 2021. The SEC unveiled new proposals on Monday requiring companies to disclose climate-related risks.

Every year, public companies in the U.S. are required to provide investors and regulators with detailed data about their financial performance and the risks they face. Soon, they may also have to disclose information about how they are dealing with climate change.

The U.S. Securities and Exchange Commission on Monday formally proposed new rules that would for the first time require businesses to report their greenhouse gas emissions, along with details of how climate change is affecting their businesses.

Though some companies such as Apple have voluntarily reported climate-related information, until now there have not been any standardized requirements imposed by the SEC.

In a statement of support for the proposed rules, SEC Chair Gary Gensler said the regulator is responding to demand from investors and companies given the increased push for information on the risks climate change-related events pose to businesses.

"Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures," Gensler said. "That principle applies equally to our environmental-related disclosures."

Gary Gensler, Chair of the U.S. Securities and Exchange Commission, testifies before the Senate Banking Committee on Sept. 14, 2021, in Washington, D.C.
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Gary Gensler, chair of the U.S. Securities and Exchange Commission, testifies before the Senate Banking Committee last year in Washington, D.C.

The rules would be phased in

If the regulators approve the rules, companies would be required to provide climate-related information when they register as public companies with the SEC, and also in annual filings.

Companies would need to disclose potential risks to their operations from climate-related events such as having operations in an area facing the risk of rising sea levels.

The rules would also require companies to provide data on their own greenhouse gas emissions and also on how much energy they consume. These are known as "Scope 1" and "Scope 2" emissions, respectively.

"Scope 3" emissions have proved to be more controversial. They are emissions generated by a company's suppliers and customers. Many companies and trade groups, including the U.S. Chamber of Commerce, have opposed mandated reporting of Scope 3 emissions saying it would be too burdensome and complicated to estimate emissions across a company's operations.

Under the rules unveiled on Monday, the SEC says it would put the onus on companies to determine whether their Scope 3 emissions are "material" — meaning the data would be an important factor to know for an investor.

Investors and the SEC itself would be able to challenge a company's assessment of what counts as material information. Smaller companies would be exempted from reporting their Scope 3 emissions.

The rules would be phased in in stages with an additional phase-in period for Scope 3 disclosures. That means companies may not have to file information on climate risk until 2024 at the earliest.

The public will have 60 days to weigh in on the proposed rules.

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