The Securities and Exchange Commission made a historic decision on Wednesday, voting to mandate that public companies disclose a portion of their greenhouse gas emissions and their exposure to climate change risks.
The new rules require companies to report their Scope 1 and 2 emissions, which result from direct operations and energy use, but they do not include Scope 3 emissions. This category encompasses pollution generated indirectly through supply chains or when customers use the company’s products or services.
While privately held companies such as startups are not affected by these regulations, the emergence of these new disclosure requirements presents opportunities for companies focused on carbon tracking, accounting, and management.
The SEC’s consideration of climate-related disclosures dates back to 2022, and during the development of these regulations, the agency received a staggering 24,000 comments from various stakeholders. The proposal was met with mixed opinions from publicly traded companies under the SEC’s jurisdiction.
Support for Scope 3 disclosures came from companies like Amazon, Vanguard, Ralph Lauren, and Chevron, who already actively track their emissions. However, other companies such as Walmart, Fidelity, Gap, Southwest Airlines, and BlackRock opposed the proposal, citing concerns about the accuracy of Scope 3 estimates.
In recent years, many startups have turned to artificial intelligence to automate and improve their Scope 3 estimates. This trend is expected to continue as companies adapt to the new disclosure requirements.
The SEC’s adoption of these rules puts the US on par with other major economies such as China and the EU, which already have their own greenhouse gas reporting requirements in place. While the final regulations were significantly diluted from their initial proposal, they still serve as a significant step forward. These disclosures related to emissions and climate risk will become crucial data points for investors evaluating companies.
