US crafts climate reporting rules; will ramp up to full disclosure up & down corporate value chain
The US is moving to craft its own set of climate disclosure regulations for all listed firms, with a proposal by the market regulatory body SEC (the Securities and Exchange Commission) drawing quick support from government leaders.
The 510-page proposal and study covers a broad spectrum of requirements, from climate risk management practices to impact study procedures and results, including impact on financials, strategy and business models past, present and future. Reporting firms will go line by financial line on the impact of a full schedule of climate-related events.
"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," SEC chair Gary Gensler (pictured) said in releasing the proposal.
"Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognise that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions."
Reporting firms with established climate-related analyses, transition plans or targets will have to go step by step on the KPIs that underpin the plan and mark its progress, the SEC said in a summary of its proposal.
Access to insurance in risk-prone environments could be one such reportable risk; insurance coverage by risk category another, the SEC document suggested.
Specific mandatory disclosures on environmental impact will include: direct greenhouse gas (GHG) emissions, indirect emissions via purchased energy and eventually GHG emissions from upstream and downstream activities in the corporate value chain. The nation's smallest firms would be exempt from the value chain calculations and all reporters would be exempt from liability on those calculations.
"These proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a registrant’s exposure to, and management of, climate-related risks, and in particular transition risks," SEC authors wrote.
Direct and indirect emissions values would eventually be subject to audit.
The proposed rules would include a phase-in period for all registrants, with the compliance date dependent on the registrant’s filer status, and an additional phase-in period for releasing calculations of emissions in the corporate value chain.
The plan, now open for a period of public comment, got quick traction from the top echelons of the US government. US Treasury secretary Janet Yellen called the proposal "an important step to protect investors and strengthen the overall resilience of the financial system” following "many years" of investor demand for new information tools.
Some 17 US states already have specific GHG emissions reporting requirements, although most tend to focus only on direct emissions. Some listed companies in the US are already forced to comply with those state requirements.
An SEC study showed that only 33% of all annual reports from US-listed firms made reference to climate change or policy, higher for foreign firms than US-domiciled.
Insurers ranked seventh amongst major industries on the SEC's ranking of climate policy references in filings, with 70% of filings including the catch phrases in their reporting. Marine transportation and electric service top the list at and above the 90% level. Banking is amongst the poorest segments, with only 21% of listed banks mentioning climate change or related issues in their reporting.
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