As expected, the US Securities and Exchange Commission (SEC) voted yesterday 3-1 "to propose regulations that, for the first time, require companies to disclose their greenhouse gas emissions as well as their exposure to climate change risks," Axios reports.
According to the story, "In proposing climate risk disclosure rules, the SEC is effectively trying to set a floor for companies to meet or exceed when reporting how prepared they are for the consequences of a warming world … The proposed rule would require companies to include certain climate change information on their financial reports, such as their Form 10-K.
"The information to be disclosed would include how climate-related risks could affect the company's business, strategy and projections … The company's greenhouse gas emissions would need to be audited by an outside party. The rule gives firms wiggle room over emissions embedded within its value chain, such as those caused when customers use its products, which are known as 'Scope 3' emissions."
Axios notes that "the rule is meant to give companies more certainty about how they need to incorporate climate change into their financial reporting, but it contains gaps that may allow big emitters to obscure their complete carbon footprint."
- KC's View:
If one accepts, as I do, that climate change is a fact and that some percentage of it can be impacted by addressing issues such as greenhouse gases, then it makes sense to require public companies to a) disclose their approach to these issues and level of implementation, and b) create a level and transparent playing field on which companies can be compared and contrasted.
Companies always will find some degree of wiggle room, and I'm sure there will be accusations of government overreach and regulatory abuse. But this doesn't strike me as the case - or at least, the intention - here.
One objection to the proposal is that climate change is outside the SEC's traditional lane of expertise and regulation. But it seems to me that one of the ways in which governments - and, for that matter, other institutions and companies - get in to trouble is when they silo their approaches. Staying within lanes can lead to lack of nuance when it comes to policy; I would hope that the SEC would get the appropriate guidance from climate change experts in crafting the specific regulations, but I have no problem, in theory, with this approach.