SEC outlines climate disclosure rules to boost Biden agenda

Companies would be required to disclose their greenhouse gas emissions and be held to account on their climate promises under a proposal released Monday by the Securities and Exchange Commission.

The proposed rule would deliver a big — and durable — policy win for President Joe Biden, whose climate agenda has been mired in congressional partisanship, and overshadowed by economic and geopolitical crises.

The SEC rule would generate detailed information on how corporations, financial services firms and other businesses are being affected by climate change. It would force them to explain how they are coping with extreme weather, supply chain disruptions and other climate-related upheavals.

On one level, the proposal merely writes widespread practices into law. Thousands of companies already disclose emissions and reduction targets under voluntary standards set by the business community. The SEC cited two of those — the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol — and modeled some of its proposals on those frameworks.

The proposed rule also relies on the concept of materiality, information that a shareholder might deem important to a company’s revenue, profits or operations, for example. Companies already are required to disclose any material information, and many include climate risk in their disclosures.

But shareholders, consumers and many business groups have demanded uniformity and legal accountability, which SEC Chair Gary Gensler, a Biden appointee, has promised to deliver. In thousands of comment letters to the regulator, corporations and shareholders largely aligned on the need for standardized climate risk reporting.

The commission is scheduled to vote Monday to publish the proposal, setting off a period for public comment.

Here are the highlights:

— Climate-related information, including any near-, medium- or long-term risks to the bottom line, would be required in corporate filings such as the SEC’s Form 10-K. Many companies currently confine their disclosures to informal reports that carry less legal liability.

— Companies that have promised to eliminate greenhouse gas emissions or reduce their impact with a net-zero plan must report annually on their progress. Companies will be required to detail their use of offsets — the debated practice of paying to plant trees, capture carbon, generate renewable energy or other activity to compensate for emissions.

— Emissions generated by a company and its energy use — known as scope 1 and scope 2 emissions — must be disclosed.

— Indirect emissions generated by a company’s suppliers and customers — scope 3 emissions — must be disclosed if they are material to a company’s performance or if the company has set targets for reducing emissions. All disclosures would be phased in, with a safe legal harbor for scope 3 disclosures. Smaller companies would be exempt from scope 3 disclosure.

— Large companies would be required to obtain assurance from an independent third party that its emissions disclosures are accurate. Third parties might include traditional accounting firms, but could include other experts, such as engineering firms.

— Companies that put a price on carbon to inform their planning and investment would need to disclose that price and how it is set. Internal carbon pricing — effectively, a private tax on polluting activity — has won adherents even as policymakers debate a tax on carbon.