The SEC may require U.S. businesses to disclose carbon emissions

Sustainability

30. Mar 2022

Dr Aron Vallinder

Scientific Writer

Headshot of Evan Farbstein

Evan Farbstein

Content manager

The proposed legislation would require publicly-listed companies to disclose their carbon emissions.

Dr Aron Vallinder

Scientific Writer

Read bio
Headshot of Evan Farbstein

Evan Farbstein

Content manager

Read bio

The United States Securities and Exchange Commission (SEC) has proposed a new rule to standardize climate disclosures for public companies.

U.S. federal regulations already require publicly-listed companies to disclose their financial information, as well as an analysis of their strengths, weaknesses, opportunities, and threats.

With the proposed rule RIN 3235-AM87, the SEC now wants companies to reflect on how they contribute to climate change, and how climate change may impact their operations.

Public companies will need to disclose

  • Scope 1 and Scope 2 emissions
  • Scope 3 emissions, if they are material or if the company has set Scope 3 targets (small companies are exempt from this requirement)
  • Governance of climate risks
  • The material impact of climate risks on its business
  • The impact of climate risks on strategy and business model 
  • The impact of climate-related events (e.g. severe weather) on items of their consolidated financial statements

What does this mean for businesses?

If the proposal is adopted, many more U.S. public companies will need to begin reporting on their emissions.

Before reporting their emissions, these businesses will first need to measure their full emissions, including the difficult-to-measure scope 3 emissions that originate in their value chains.

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The proposed disclosure requirements are similar to those of existing frameworks such as the Greenhouse Gas Protocol and the Task Force on Climate-Related Disclosures (TCFD).

When would the SEC proposal go into effect?

The proposed rules would be phased in over time, with an additional phase-in period for Scope 3 disclosures.

All emissions disclosures would be phased in between 2023 – 2026.

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