SEC asks companies to divulge pollution and climate risks

The US Securities and Exchange Commission introduced new rules today that could oblige companies to update investors annually on the amount of global warming pollution they pump out and how that pollution could ultimately affect their bottom line.

A slew of companies, from Apple to Amazon, have pledged to become carbon neutral in the coming decades. Consistent updates on how much pollution they create helps ensure that climate promises aren’t just greenwashing or making false promises. The proposed rules also aim to protect investors while companies deal with them with disasters related to climate change, such as more extreme weather.

“We are concerned that existing disclosures of climate-related risks are not providing investors with the detailed and reliable climate-related information they need to make informed investment and voting decisions,” said Renee Jones, director of the SEC’s Division of Corporation Finance. during an SEC open meeting Today.

When the rules come into effect, public companies would have to share GHG emissions from their operations and electricity consumption. The SEC also tried some companies responsible for indirect emissions from their supply chains and consumers using their products, a more contentious disclosure. Some companies have excluded these indirect emissions from climate commitments, arguing that this pollution is beyond their control. The SEC said today that smaller companies need not disclose those indirect issues, and larger companies need only share those indirect issues that are “material” or essential to investors’ understanding of a company’s financial situation — an obscure distinction.

About a third of companies already disclose at least some of their emissions or climate risks in annual reports, according to the SEC. But without federal standards for reporting greenhouse gas emissions, it’s difficult for investors to compare companies’ environmental impacts. For example, two companies could claim to be carbon neutral, but one company could be: indirect emissions (which often make up the bulk of a company’s pollution), while the other does not.

The SEC also called on public companies to be more transparent about how they plan to achieve their climate goals. For example, carbon neutrality can be achieved by reducing pollution or offsetting emissions through efforts such as planting trees to carry away carbon dioxide. But compensation schemes often have failed to lead to meaningful reductions in greenhouse gases. And some companies, including Amazon, have even seen their emissions grow since they pledged to achieve net-zero emissions.

The new rules also require state-owned companies to recognize how their operations could change in a warming world, including how climate change could already impact business. Some companies are already starting to do this. Oatly, for example, said in documents it filed with the SEC when it became public that climate change could endanger the crops it relies on. Investor demand for climate information has grown ‘drastic’ according to the SECsince 2010, when the commission issued the first guidance on how climate change relates to existing disclosure requirements.

The stricter guidelines proposed by the SEC today have yet to be finalized after a public comment period. The rules are likely to face legal challenges, and there is also resistance within the committee. “This proposal goes beyond legal limits by using the disclosure framework to achieve goals that are not ours to pursue,” Trump-appointed Commissioner Hester Peirce said at the SEC’s meeting today. “Many calls for more climate information are motivated not by interest in financial returns, but by deep climate concerns or sometimes superficial concerns about amassing goodwill,” she said. Peirce was the only one of the four commissioners to oppose the proposal today.

SOURCE – www.theverge.com

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