The U.S. Securities and Exchange Commission (“SEC”) is an independent agency of the federal government with the primary purpose of enforcing the law against market manipulation. Given that U.S. publicly traded companies are responsible for 40% of emissions, the SEC submitted a formal proposal on March 21, 2022, which states that publicly traded companies report greenhouse-gas emissions from their operations (Scope 1) and energy consumption (Scope 2) in their annual SEC filings. This proposed emissions disclosure would also have to be independently certified to assure accuracy, similar to an auditor’s independent verification of a company’s financial information. Furthermore, the SEC’s proposal stated that companies with material greenhouse-gas emissions would also be required to report Scope 3 emissions, which are greenhouse-gas emissions related to said companies’ suppliers and customers. Lastly, the proposal required that companies include in their annual filings their long-term risks associated with climate change and how they are addressing those concerns.

The proposal submission is the first of many steps, including feedback from the public and an actual vote, before any real-life implications would be felt. Politically, support is divided on this subject matter. The majority of Democrats support the move, whereas the bulk of Republicans oppose it on the basis that the SEC is overstepping. Additionally, this disclosure requirement is not straightforward in that data gathering is challenging, and reporting is not standardized.

As a point of reference, other countries are acting similarly:

  • The largest companies in the U.K. will submit initial climate-related risk reports next month.
  • Swiss companies will begin reporting their climate-related risks in 2024.
  • New Zealand passed corporate climate disclosure requirements last year.

Currently, 1,500 U.S. companies voluntarily disclose climate-related risk information. If the current proposal becomes law, emissions disclosure would no longer be optional and instead be an additional reporting requirement for American publicly traded companies.