New SEC Climate Disclosure Rule a Major Step Forward
New rule a game-changer for reducing investor climate financial risk and costs
FOR IMMEDIATE RELEASE
MEDIA CONTACT: Stefanie Spear, sspear@asyousow.org, 216-387-1609
BERKELEY, CA—MARCH 21, 2022—The long-awaited U.S. Securities Exchange Commission (SEC) draft rule on climate disclosure was released today requiring companies to provide Scope 1, 2 and 3 emissions disclosures; any climate-related goals and progress; climate transition plans, if any; climate-related risk assessment information, including transition risk; and climate governance information, among others. This rule will reduce costs and increase investor knowledge about climate risk and whether companies are reducing the full range of their emissions in line with the Paris climate agreement's 1.5-degree goal.
Jessica Wachter, SEC chief economist, noted the new rules will provide greater comparability and reduce costs to investors who currently struggle to assess information from a “variety of reporting frameworks in a variety of places.” She also stressed how the new rule will reduce “information asymmetry,” insider trading, and investor costs by standardizing the format and location of material information.
As climate risk increases and climate transition gains speed, businesses must be able to look across their supply chains and receive accurate information about whether suppliers are factoring climate risk into their business operations and business decisions, and whether they are also reducing their climate emissions. This information is critical to executives’ ability to make informed, long-term, strategic decisions.
“The new climate disclosure rule is truly a watershed moment in responding to investor demand for accurate climate disclosure,” said Danielle Fugere, As You Sow president and chief counsel. “Clear and standardized reporting of greenhouse gas emissions is the bedrock of sound investor decision-making. The new rule provides investors with more robust, complete, and comparable disclosure of risk and the emissions data to determine which companies are aligning their business activities with Paris targets and minimizing transition risks.”
SEC Commissioner Allison Lee discussed that maintaining effective disclosure regimes is a major part of the SEC’s job. The SEC has a responsibility to investors to accurately price risk, she said, adding the agency has a responsibility to make sure markets are based on facts. She pointed out many climate risks have already materialized and are having a negative impact on capital markets and the entire economy.
The new rule applies to the majority of issuers, including companies with carbon-intensive business models. Scope 3 emissions are particularly important as the largest source of emissions from most companies. According to Paul H. Munter, SEC chief accountant, the new rule will require that Scope 1 and 2 will be required to be included in the company audited financial statements, with Scope 3 reporting, where material, being phased in over time depending on the size of the company. Smaller companies are exempt. The requirements for verification, attestation, and reasonable assurance of this information will help increase the accuracy, reliability, and standardization of climate-related risk information. Requirements of disclosure of assumptions used by companies will also help investors understand the disclosed impact of climate on financial documents.
Climate change is a global problem. As climate-related impacts reach historic and increasingly catastrophic levels, commensurate ambition and action are required. We have seen voluntary guidance does not result in either quick or comprehensive action by markets. To prompt necessary action, investors support clear and consistent climate-related disclosure mandates from the SEC, including full reporting of Scope 1-3 emissions.
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As You Sow is the nation’s leading shareholder advocacy nonprofit, with a 30-year track record promoting environmental and social corporate responsibility and advancing values-aligned investing. Its issue areas include climate change, ocean plastics, pesticides, racial justice, workplace diversity, and executive compensation. Click here for As You Sow’s shareholder resolution tracker.