The United States Securities and Exchange Commission (SEC) presented a proposal March 21 that would require U.S companies to submit a climate report.
"I am pleased to support today’s proposal because, if adopted, it would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers," SEC Chair Gary Gensler said in an SEC press release.
The proposal would require Scope 1 and Scope 2 reporting, which respectively would detail direct and indirect emissions, as well as Scope 3 reporting, which refers to greenhouse gases generated by suppliers and partners, the release stated.
“The Supreme Court has been clear that any required disclosures under securities laws must meet the test of materiality, and we will advocate against provisions of this proposal that deviate from that standard," Tom Quaadman, executive vice president with the U.S. Chamber of Commerce, said in a statement.
The legislation, which may be finalized later this year, also requires businesses to report on the "actual or likely material impacts" of climate change on their business.
“Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions,” Gensler said in the release.
The proposed rule changes would require a registrant to disclose information about the registrant’s perspective on potential climate-related risks, how the occurrence would impact its business and its overall business model, among other observations, the release stated.
For registrants that already submitted the requested information, “the proposed amendments would require certain disclosures to enable investors to understand those aspects of the registrants’ climate risk management,” according to the SEC.
"Companies and investors alike would benefit from the clear rules of the road," Gensler said, referring to what he claims is broad support for uniform climate reporting requirements. “Today’s proposal would help issuers more efficiently and effectively disclose these risks and meet investor demand, as many issuers already seek to do. Companies and investors alike would benefit from the clear rules of the road proposed in this release.”
According to Morningstar, $71 billion flowed into U.S. environmental, social and governance-focused funds in 2021. Sen. Patrick Toomey, the Senate Banking Committee's top Republican, blasted the rule, and its earnings, saying it "extends far beyond the SEC's mission."