SEC Pushes Companies to Disclose Climate Risks, Faces Opposition

Businesses are under increasing pressure from investors and regulators to disclose the greenhouse-gas emissions their products and services create. As The Wall Street Journal reports, every public company in the United States might be required to report climate information within the next couple of years. 

According to the Journal: “Such an effort would be the biggest potential expansion in corporate disclosure since the creation of the Depression-era rules over financial disclosures that underpin modern corporate statements.”

Regulators in the U.S. and Europe already require that public companies disclose their greenhouse-gas emissions, which could extend to those their suppliers and customers produce. Regulators also want public companies to disclose their climate-related financial risks. The U.S. Securities and Exchange Commission is working on climate-disclosure regulation with backing from the Biden White House, which has called for drastic cuts in greenhouse-gas emissions. Corporations already publish environmental data voluntarily.

According to a widely used international framework, a company’s greenhouse-gas emissions fall into three categories: those stemming from company operations; those resulting from the energy the company buys; and most difficult to measure, emissions related to the company’s products but produced by its employees, suppliers and customers.

In a recent speech, SEC Chairman Gary Gensler said he had asked agency staff to propose rules for mandatory climate-risk disclosures by the end of the year. The SEC was created to protect investors and typically regulates publicly traded companies. Some politicians argue that it isn’t the SEC’s job to mandate nonfinancial disclosures. 

Some industry groups, including the U.S. Oil and Gas Association, told the SEC it lacked legal authority to compel disclosures and impose value judgments. Patrick Morrisey, West Virginia’s Republican attorney general, wrote that the state “will not permit the unconstitutional politicization of the Securities and Exchange Commission.”