SEC finalizes weakened rule to make companies disclose climate information

The federal government will require some of the largest publicly traded companies to disclose their levels of greenhouse gas emissions under a new rule from the Securities and Exchange Commission (SEC).

The SEC voted 3-2 on Wednesday to require large companies to tell investors about greenhouse gas emissions directly caused by their business if that information would be likely to influence someone’s decision on whether to invest.

SEC Chair Gary Gensler, Commissioner Caroline Crenshaw and Commissioner Jaime Lizárraga — all Democrats —voted in favor of the rule, while Republican Commissioners Hester Peirce and Mark Uyeda voted against it.

The rule will also require all publicly traded companies to disclose ways in which climate change poses significant risks to their business.

The rule represents a massive — and contentious — step in terms of what companies are required to tell potential investors about their vulnerability and contribution to climate change.

But it is significantly scaled back from what the agency proposed in 2022. That rule would have required all public companies to disclose their direct emissions, and also made some companies report emissions from their supply chains and the use of their products.

Instead, as part of an effort to lighten the burden for companies, the SEC will only make large and midsize companies report their emissions that come from generating the electricity a company uses. They’ll have to report emissions for their fiscal years that start in 2026 and 2028, respectively.

The SEC also dropped a provision that would have required companies to report the emissions generated by products they sell, which would have made oil companies, for example, responsible for reporting carbon emitted when their product is burned. That decision handed a major win to opponents of the initial proposal.

In a statement Wednesday morning, Gensler framed the rule as a measure that “benefits investors and issuers alike,” giving investors a clear apples-to-apples of different companies’ contributions and exposure to climate risk, and giving companies a clear standard to meet.

While Gensler said the agency had no role in reducing climate risk — a potential role that Republicans have portrayed as the government picking winners and losers — he argued that the rule would help investors “decide what risks to take.”

Peirce argued that the rule gives climate change unnecessary special treatment.

She said that despite the changes, the rule will still “spam investors with details from the commission’s pet topic of the day.”

She added the oncoming slew of climate-related disclosures will “overwhelm investors, not inform them.”

Sen. Tim Scott (R-S.C.), went even further, describing the rule as doing “far more to advance the Biden administration’s far-Left climate agenda than uphold the SEC’s mandate to protect investors,” in a written statement.

Scott, the top Republican on the Senate Banking Committee, said he would try to use congressional power to overturn the rule — though any such action is likely to be vetoed by President Biden.

The rule also created a new list of qualitative disclosures, which force companies to tell investors what they’re doing about climate change.

Under the rule, businesses will also have to share their climate-related goals, including plans they are undertaking to transition off of fossil fuels. They must also disclose internal processes set by management to oversee their climate plans if those actions are expected to have significant impact on their business.

In a blow to some business trade groups, the agency also decided to keep the climate disclosures legally binding, a step that opens up companies to legal liability if they misstate their emissions.

The fact that the SEC is directly confronting emissions marks a sea change in the agency’s approach, Sonia Gupta Barros, an attorney at Sidley Austin LLP who served as a regulator from with the SEC’s disclosure review program 2004-21, told The Hill.

While the SEC took steps in 2010 toward the idea that climate-related information might be material to investor decisions, greenhouse gas emissions weren’t a big area of focus at the agency until 2021.

In the interim, however, much changed in the industry, Gensler said.

“Far more investors are making investment decisions that are informed by climate risk, and far more companies are making disclosures about climate risk,” Gensler said.

The rule received some celebration from Democrats, who argue that the disclosures could be a big deal for helping factor climate change into financial markets.

“The climate disclosure rule approved by the SEC today marks the first time that publicly traded companies are required to report climate-related information in a consistent and detailed way to their investors,” said a joint written statement from members of the House Sustainable Energy and Environment Coalition.

“This is a necessary and prudent step towards transparent, fair, and efficient financial markets,” said the statement from Democratic Reps. Doris Matsui (Calif.), Mike Quigley (Ill.), Paul Tonko (N.Y.), Don Beyer (Va.), Matt Cartwright (Pa.), Sean Casten (Ill.), Chellie Pingree (Maine), Katie Porter (Calif.) and Gerry Connolly (Va.).

However, some expressed disappointment that the final rule ultimately scaled back the emissions disclosure requirements. 

“This SEC decision will let big corporations off the hook in the United States, allowing them to avoid disclosure of emissions from throughout their supply chains. It means big promises without any real accountability to deliver emissions reductions, despite these same entities having to provide this information in the European Union and in California starting in 2026,” said Sen. Ed Markey (D-Mass.), chair of the Environment and Public Works Subcommittee on Clean Air, Climate, and Nuclear Safety. “We cannot allow major companies to put investors, markets, and our economy at risk by failing to mandate key information.”

On the other hand, some moderate Democrats were pleased with the changes. Sen. Jon Tester who faces a tough reelection battle in red-state Montana, noted in a written statement that he fought against the now-dropped product and supply chain emissions provisions.

“I’m proud to have declared this requirement dead on arrival and to have fought every step of the way to stop it in its tracks so that our farmers can continue to focus on what’s important: feeding the world,” he said in a written statement.

About 90 percent of the Russell 1000 issuers — the 1,000 biggest stocks on the Russell Index — make some form of climate disclosure, and nearly 60 percent provide information about their greenhouse gas emissions.

In their comments to the SEC on the draft rule, investors large and small “have indicated that they are making decisions in reliance on [climate risk] information,” Gensler said.

“It’s in this context that we have a role to play with regard to climate-related disclosures,” he added.

Updated at 4:39 p.m. ET