About an hour ago, the SEC approved a rules proposal to require any SEC publicly registered company to report their carbon emissions in their financial reports. This will open any number of interesting challenges to firms (assuming it survives court challenges — which is a significant risk).
The major requirements are listed by NPR here:
1. They must disclose risks to operations from climate risk — flooding from rising water for waterfront operations, probably insurance claims costs for insurers, etc.
2. They will need to report Scope 1 emissions — emissions from their own operations — and Scope 2 emissions — indirect emissions from generation of purchased energy
The inclusion of Scope 3 emissions — all other emissions not in Scope 1 and 2 — will be required to be reported if “material”.
Here is the nuance — incorrect reporting of information in your financial report is actionable by shareholders. Even more importantly, failing to report “material” information because you determined it to be “immaterial” is also actionable. If a company such as a major retailer were to not disclose any of its Scope 3 because it was ‘immaterial” would just be asking for a lawsuit — because all the emissions from the cargo ships would be Scope 3 emissions for that firm, as well as all the trucks, etc.
This is positioned to force companies to disclose. It is also likely to force them to disclose where they are using offsets — which also makes the offsets being used subject to scrutiny.
This may be of real value (or it could get completely watered down and washed away). It is something people should focus on and get ready to write comment letters to the SEC.
