“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. 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.”
- SEC Chair, Gary Gensler
The SEC recently unveiled its landmark proposal requiring companies to disclose a variety of climate-related data as part of their annual reports and audited financial statements in the coming years. This rule would apply to both domestic and foreign
The requirements cover both quantitative and qualitative information. RPIA has been a supporter of both types of disclosures as we recognize that greenhouse gas emissions (GHG) data is backward-looking and does not always capture the steps companies are taking to reduce their GHG footprints. Quantitative disclosures will include Scope 1 and 2 emissions data and Scope 3 data if considered material for the company or if the company has set a reduction target related to Scope 3. Qualitative disclosures include many of the discussion points included in the TCFD framework.
We see this as an important step in the codifying of climate-related risks, echoing the regulatory regimes already in place in the Eurozone. The proposed disclosures will:
- Help improve the quality and comparability of a company’s climate-related disclosures, which will benefit the integration of climate-related risks and opportunities into the market pricing of cost of capital and risk premiums.
- Include details on any climate targets and goals set by the company, which we believe is an important inclusion that can help bring further scrutiny to the level of validity and ambition within corporate targets.
- Provide better transparency on the use of carbon offsets and renewable energy certificates and their role in a company’s reduction and net-zero claims.
Finally, the SEC proposal leads to similar discussions currently happening in Canada and will help pressure Canadian regulators to adopt a similar disclosure requirement.