The U.S. Securities and Exchange Commission has released a rule that would require public companies to make disclosures about their greenhouse gas emissions, climate-related financial metrics and climate-related risks.
The background: Since the early days of the Biden administration, the SEC has said that investors need “consistent, comparable and decision-useful information” about public companies’ climate-related risks. SEC Commissioner Allison Lee, a longtime champion of climate disclosures, called yesterday’s announcement “a watershed moment for investors and financial markets.”
The rule: The proposed rule would institute a wide range of new climate disclosure obligations for publicly traded companies.
- GHG reporting: All companies would be required to report Scope 1 and Scope 2 greenhouse gas emissions—those generated directly by a company’s operations or indirectly by a company’s energy usage. If “material” to investors, companies would also have to report their Scope 3 emissions—those resulting from upstream and downstream activities in their value chain.
- Financial metrics: Companies would be required to analyze climate impacts on their existing financial statement line items (like revenues, cash flow and capital expenses).
- Climate risk disclosures: This set of disclosures involves companies’ assessment of their “physical risks” (like fires and floods) and “transition risks” (like climate regulations or new green business models) related to climate change. Businesses would have to evaluate these risks and then disclose their potential impact as well as what steps the company is taking to mitigate them.
- Targets and goals: Many companies set public goals related to greenhouse gas emissions, water usage and the like. Under the SEC’s rule, companies would have to report information on how these goals are set, tracked and accomplished.
The SEC hopes to finalize its proposed rule by the end of this year, which means the largest companies would have to comply as of their FY2023 filings (submitted in early 2024).
Our action: Protecting manufacturers and their shareholders as the SEC works to mandate climate disclosures is a top NAM priority. NAM members can learn more about the SEC’s climate rule during our March 29 webinar, which you can register for here. We will be providing comment on the SEC’s proposal, and manufacturers are encouraged to share their feedback with NAM Senior Director of Tax and Domestic Economic Policy Charles Crain.
The last word: “Manufacturers support key disclosures related to publicly traded companies’ climate strategies, as this information can help shareholders make informed decisions,” said NAM President and CEO Jay Timmons.
“However, broad, sweeping disclosures could be counterproductive—requiring manufacturers to waste time and resources reporting irrelevant information that will not be decision-useful for shareholders. The SEC should focus on requiring disclosure of material information, and the NAM looks forward to working with the SEC to ensure that its proposed climate reporting rule enables smart, company-specific disclosures that are tailored and targeted.”