SEC Proposes Mandatory Carbon Emission Reporting for US Listed Companies

Last year, the United States Securities and Exchange Commission (SEC) published a proposal outlining a plan that would require publicly traded companies in the U.S. to report their greenhouse gas emissions associated with the energy they consume. There is a growing global push for robust carbon accounting, where private companies will be responsible for monitoring and disclosing their climate-related data, including the lifecycle emissions of their products and services. The collection and communication of climate data are seen as essential steps in the fight to keep global warming within 1.5-2 degrees Celsius above pre-industrial levels, thereby avoiding catastrophic climate change. Members of the Task Force on Climate-Related Financial Disclosure (TCFD), an international task force on climate-related financial reporting, include Belgium, Canada, Chile, France, Japan, New Zealand, Sweden, and the United Kingdom. However, in the United States, the future of climate disclosure mandates is somewhat uncertain due to an ongoing standoff between policymakers and investors. Last year, the United States Securities and Exchange Commission (SEC) published a 534- page proposal outlining a plan that would require publicly traded companies in the U.S. to report their greenhouse gas emissions associated with the energy they consume, as well as all emissions resulting from their operations. These estimates will need to be independently certified to ensure their accuracy. “In some cases, companies will also be required to report greenhouse gas production from both their supply chains and consumers, known as Scope 3 emissions,” reported The Wall Street Journal at the time of the proposal’s release. “An SEC official stated that most S&P 500 companies will likely have to report Scope 3 emissions. Companies will need to include the information in SEC documents such as annual reports.” It is not surprising that the plan has been met with considerable disapproval from the private sector, and there is strong pressure against the proposed rules. As a result, the SEC has indicated that it will likely soften certain aspects of the mandates, with an updated version of the proposal to be released by the end of the year. However, the basic principles of the proposal will remain the same, and publicly traded companies can expect to start accounting for their carbon in the near future. “The SEC has no role when it comes to climate risk itself,” said SEC Chairman Gary Gensler earlier this year to the U.S. House Financial Services Committee, adding that “we do have an important role in ensuring public companies have full, fair, and accurate disclosure on material risks.” Many companies are already undertaking some form of this accounting to meet investor demands, as investors are increasingly interested in ESG (environmental, social, and governance) aspects. However, the SEC is seeking to standardize these data. In fact, many large companies in the United States are already preparing for increased carbon accounting and disclosure rules. For other companies wondering where to start, WSJ Sustainable Business recently published introductory guidelines for initiating carbon accounting based on advice from sustainability executives at Holcim, HP, and Nestlé. “Carbon is not a new science; no one should panic,” said Benjamin Ware, Nestlé’s Global Head of Climate and Sustainable Sourcing. The steps outlined in WSJ Sustainable Business are as follows: Build expertise: Starting with the hiring of external consultants to guide the process, companies will also need to work on building internal capabilities. Companies should approach this by hiring graduates in environmental sciences rather than relying solely on training existing employees. Follow established standards: While the SEC mandates may not be in place yet, there are many existing guidelines and standards that establish more or less universal rules and approaches for basic carbon accounting. Start with the easier tasks: Companies will need to begin with the more concrete and easily monitorable Scope 1 and Scope 2 emissions, which are the direct emissions from operations and energy consumption. Collaborate with suppliers to address Scope 3: Since Scope 3 emissions include emissions throughout the value chain, collaborating with suppliers and consumers to track their emissions can be very helpful for overall accounting. Don’t rush to publish and review: Companies should keep their emission data for the first two years internally to ensure that any bugs are resolved and their methodology is scientifically valid and withstands scrutiny.