{"id":4915,"date":"2022-10-14T10:00:20","date_gmt":"2022-10-14T15:00:20","guid":{"rendered":"https:\/\/blogs.luc.edu\/compliance\/?p=4915"},"modified":"2022-10-14T10:00:20","modified_gmt":"2022-10-14T15:00:20","slug":"climate-related-disclosures-for-investors-what-the-sec-has-proposed-how-proposals-may-impact-the-regulatory-world-and-small-businesses","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=4915","title":{"rendered":"Climate-Related Disclosures for Investors: What the SEC Has Proposed & How Proposals May Impact the Regulatory World and Small Businesses"},"content":{"rendered":"

Justice Martin <\/em><\/p>\n

Associate Editor<\/em><\/p>\n

Loyola University Chicago School of Law, JD 2024<\/em><\/p>\n

In March of this year, the Securities and Exchange Commission (SEC) proposed a new rule that would require public companies to disclose important information about their carbon footprint.\u00a0 Although many continue to sing the praises of the new rule, a fair share of critics has emerged as well. Additionally, while this proposal may have an impact on large public companies, critics question what this rule will mean for smaller suppliers.<\/p>\n

<\/p>\n

What is the new SEC proposed rule?<\/strong><\/p>\n

Earlier this year SEC commissioners voted 3-1 to issue a new proposal, \u201cThe Enhancement and Standardization of Climate-Related Disclosures for Investors\u201d. This proposal would allow the SEC<\/a> to receive \u201ccertain climate-related information in their registration statements and annual reports\u201d from registrants. This proposal is intended to provide more information to prospective investors of large public companies while simultaneously addressing the Biden administration\u2019s priority on environmental causes.<\/p>\n

With the implementation of this proposal, three categories of disclosures<\/a> will be provided to the SEC: greenhouse gas emission reports, important climate impact reports, and targets or transition plans. The first category addressing greenhouse gas emissions will require companies to disclose the amount of greenhouse gas emissions they produce that fall into either Scope 1, 2, or 3 emissions. More specifically, publicly traded companies will have to disclose the amount of energy they consume for their operations and obtain independent certification of their estimates.\u00a0 Within Scope 3 emissions, some public companies may have to ask their suppliers to provide reports on their carbon footprint, which could create new challenges regarding the accuracy of these disclosures. The next category will look at various factors, such as how a company has identified and addressed climate risks, if they have a strategy in place and if it is effective.\u00a0 Lastly, the SEC will require companies to identify and disclose existing emission reduction targets and lower energy use targets, among other things.<\/p>\n

SEC chairman Gary Gensler<\/a> believes that the SEC has a long history of stepping in when there is a significant need for the disclosure of information that is integral to investors\u2019 decisions. He sees this new proposal as no different. According to Gensler, some public companies have already disclosed information in their past annual reports that directly address climate-related disclosures. \u201cSEC<\/a> staff, in reviewing nearly 7,000 annual reports submitted in 2019 and 2020, found that a third included some disclosure related to climate change.\u201d Although companies in the past have voluntarily disclosed climate-related information, it is not exactly uniform. This proposal will ensure that investors are not spending time parsing through the various forms of climate disclosures by different companies; they will now all be uniform.<\/p>\n

What are some thoughts on the proposal?<\/strong><\/p>\n

After the proposed rule was published, there was a designated time for public comment. During this time, so much feedback was received that the SEC issued an extension of the public comment time.\u00a0 The commentary received was mixed.\u00a0 On one hand, there has been a lot of positive rhetoric directed at the Biden<\/a> administration for following through on its promise to tackle climate change and environmental issues.\u00a0 Further, supporters of the proposed rule are delighted that the proposal will hold companies accountable for their role in accelerating climate change.<\/p>\n

Others voiced concern, including what is likely the most surprising critic\u2014the commission itself.\u00a0 Commissioner Hester M. Peirce<\/a> has been an outspoken critic of the rule proposed by the Commission she works within.\u00a0 Peirce articulated that she believed this rule was an overreach by the SEC, stating it will \u201cundermine the existing regulatory framework that for many decades has ungirded consistent, comparable, and reliable company disclosures.\u201d Other critics have stated that this will be a costly compliance hurdle for many public companies as well as small suppliers.<\/p>\n

How can this impact small businesses?<\/strong><\/p>\n

While it is important to identify and acknowledge the proposed rule\u2019s impact on stakeholders, many only look to the large public companies but what about the small private suppliers? \u00a0Small suppliers are nervous<\/a> that the SEC has implemented this rule without thinking of the \u201clittle guys.\u201d\u00a0 The suppliers may not have the human or financial resources to abide by the new regulations and provide climate-related disclosures.\u00a0 In fact, the SEC has estimated that its proposal will require businesses to spend $3.9 billion to $10.2 billion in order to produce<\/a> these disclosures.<\/p>\n

However, SEC Chairman Gary Gensler<\/a> has directly addressed this concern and has stated that the climate disclosure proposal will not require public companies to ask small private suppliers to report on their carbon footprints even though they may be involved with the public companies’ supply chain operations.\u00a0 Thus, as of right now, this proposal will seemingly not have a severe impact on small businesses and suppliers.<\/p>\n

In any event, the proposal has not yet been finalized so there may be more changes on the horizon. Only time will tell if the SEC, specifically Chairman Gensler, will keep his promise to the \u201clittle guys\u201d. So too, will time reveal whether Chairman Gensler\u2019s own view on the proposed rule will affect what the finalized rule actually looks like.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

In March of this year, the Securities and Exchange Commission (SEC) proposed a new rule that would require public companies to disclose important information about their carbon footprint.\u00a0 Although many continue to sing the praises of the new rule, a fair share of critics has emerged as well. Additionally, while this proposal may have an impact on large public companies, critics question what this rule will mean for smaller suppliers.<\/p>\n","protected":false},"author":155,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[418,468,627,741,1788],"class_list":["post-4915","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-climate-action","tag-compliance","tag-disclosure-regulation","tag-environmental-regulation","tag-sec"],"_links":{"self":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/4915","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/users\/155"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4915"}],"version-history":[{"count":0,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=\/wp\/v2\/posts\/4915\/revisions"}],"wp:attachment":[{"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4915"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4915"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.luc.edu\/compliance\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4915"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}