SEC Set to Vote on New Climate Risk Disclosure Rules for US Listed Companies
The Securities and Exchange Commission (SEC) is set to vote on new climate risk disclosure rules for US listed companies this Wednesday. The proposed rules aim to align US stock markets with EU standards, where Scope 3 reporting is already mandatory. This move could significantly impact companies' reporting requirements and investors' decision-making processes.
The new rules, if approved, would require companies to disclose their exposure to climate risks, including Scope 3 emissions. Scope 3 emissions, which account for more than 70% of the overall carbon footprint for many firms and up to 90% for the oil and gas industry, are emissions generated by a company's value chain. This includes indirect emissions from the use of sold products and services, as well as emissions from the company's supply chain.
Investors stand to benefit from these changes. Accurate Scope 3 reporting could enhance the reliability of climate indices, helping them identify companies with lower carbon footprints. However, a Reuters report suggests that the SEC may drop the Scope 3 reporting requirement due to potential legal challenges. This follows the US Supreme Court's 2022 decision to limit the Environmental Protection Agency's powers to restrict greenhouse gas emissions.
The SEC's vote on Wednesday will determine whether US listed companies will need to disclose their Scope 3 emissions. While this could provide investors with more accurate information about companies' climate risks, the potential for legal challenges remains. Meanwhile, California has already implemented Scope 1, 2, and 3 emissions reporting rules for companies, exceeding the expected SEC requirements.
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