The Securities and Exchange Commission has issued rules to make companies whose shares are publicly traded in the United States account for their climate pollution and explain how they're dealing with threats from global warming.
The climate rules the SEC adopted Wednesday were the target of intense lobbying since they were proposed in 2022, with interest groups arguing over how much information companies should have to disclose. The rules don't go as far as environmentalists had wanted. But the U.S. Chamber of Commerce and other business groups sued to block similar regulations that California passed in 2023, and legal experts say it is likely the SEC rules will also be challenged in court.
Wall Street's top regulator has said climate change can pose serious financial risks to companies. And because many corporations already report some climate information voluntarily, the SEC says it has a responsibility to ensure the data that businesses provide is consistent and comparable.
"Our federal securities laws lay out a basic bargain: Investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called 'complete and truthful disclosure,'" Gary Gensler, chair of the SEC, said on Wednesday. Gensler added that the SEC has "an important role overseeing the disclosures at the core of that basic bargain."
Does reporting climate risks help cut corporate greenhouse gas pollution?
While the new SEC rules will arm investors with more information about climate risks, it is unclear what impact, if any, the regulations will have on global warming.
A study published in 2023 found that requiring companies to disclose their greenhouse gas emissions could lead customers, employees and other stakeholders to pressure firms to cut their climate pollution. While many corporations have recently issued reports on climate change and set targets to slash emissions, independent researchers say few have delivered credible plans to meet their goals.
Gensler said the new SEC rules will require companies to start disclosing how they plan to achieve goals they set related to climate change.
"Whether climate disclosure at a global level will ever have the greenhouse gas emissions reduction effect we need, and whether it will have that effect fast enough, I think is still an open question," says Cynthia Williams, a law professor at Indiana University Maurer School of Law. "But what this disclosure regime can do is cause companies to take climate governance more seriously."
Gensler has said repeatedly that the agency's new disclosure rules aren't climate regulations — they're requirements for financial reporting.
Environmental groups and some investors wanted more
Under the new SEC rules, companies that sell stock to the public will have to disclose significant risks they face related to climate change, and explain how they're managing those risks. Companies will also have to identify costs from severe weather events. And larger public companies will have to disclose material greenhouse gas emissions from their operations, including factories, offices and corporate vehicles, as well as climate pollution from things like power plants that feed electricity to their facilities.
The word material refers to information that a reasonable investor would think is important to know about a company.
Corporations will have to have their emissions verified by third parties.
"Investors will be able to see more clearly which companies are sort of future-proofed," says Williams of Indiana University. "The SEC is regulating to meet investor demand. And investors have been asking for this information — institutional investors, in particular — for at least a decade, probably longer."
But Hester Peirce, an SEC commissioner appointed by former President Donald Trump, warned that the new disclosure rules will "spam" investors with information.
"The resulting flood of climate-related disclosures will overwhelm investors, not inform them," Peirce said in prepared remarks.
However, the rules don't go as far as proponents had hoped. Environmentalists and some investor groups wanted regulators to also force companies to say how much climate pollution comes from things like their supply chains, investments and customers using their products. For a lot of businesses, those so-called Scope 3 emissions account for most of their total carbon footprint.
Industry groups argued there's no good way right now to accurately measure those emissions. Those concerns didn't stop California from requiring public and private companies that operate in the state and make more than $1 billion a year in revenue to report all of their greenhouse gas pollution, including those indirect Scope 3 emissions.
"The [SEC] rule is a step in the right direction," says Kathy Fallon, director of land and climate at the Clean Air Task Force, an environmental group. "But now, it's so watered down that it's like going out to buy a house and you only get the disclosures that the seller wants to share with you, or that they think are relevant to you."
Other governments have enacted or are in the process of implementing their own climate-disclosure rules for corporations, including the European Union, the United Kingdom, Brazil, Mexico, Hong Kong and Japan. And legislation requiring companies to disclose information about climate change is pending in New York, Illinois and Washington state.
Gensler said it is important for the U.S. to have its own standards "based on U.S. law, based on the economics of our markets, based upon what investors here are using to make investment decisions."
He added that the rules the SEC adopted "will enhance the disclosures that investors have been relying on to make their investment decisions."
