The U.S. Securities and Exchange Commission (SEC) this week proposed new rules that would require businesses to report their greenhouse gas emissions and how climate change is impacting their operations for the first time ever.
In a statement of support for the proposed rules, SEC Chair Gary Gensler said the regulator is responding to demand from investors and companies for more information on the risks climate-related events could impact businesses.
"Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures," Gensler said in a statement Monday. "That principle applies equally to our environmental-related disclosures."
The proposed rules require companies to provide data on their own greenhouse gas emissions and on how much energy they consume, defined by the SEC as "Scope 1" and "Scope 2" emissions, respectively. Companies will also need to disclose "Scope 3" emissions, which provide insight of the carbon emitted by the businesses' suppliers and consumers, if material.
If the rules are approved, companies will be required to provide climate information when they file to go public, as well as in annual emissions filings. Larger companies will have to start disclosing climate risks next year, followed by emissions data by 2024, while smaller companies will have an extra year.
Currently, fewer than one-third of public companies in the U.S. voluntarily disclose their emissions data, according to data compiled by The Conference Board. Standardizing climate disclose across all industries will likely give companies that already use clean energy and have low carbon emissions an advantage over their peers as investors seeks to move their money towards greener options. Companies that produce tracking software and compliance professionals also stand to gain from greater adoption as demand increases from companies needing to track and report their climate risk.
For the investor, there are already numerous ESG-focused (judging companies on their environmental impact, social investing and governance practices) exchange-traded funds (ETF) which already provide exposure to companies that are already disclosing their climate risk and mitigating their environmental impacts. Popular funds include Vanguard Information Technology ETF (NYSE: VGT), Technology Select Sector SDPR Fund (NYSE: XLK) and iShares ESG Advanced MSCI EAFE ETF (NYSE: DXMF).