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The US Securities and Exchange Commission (SEC) proposed a landmark climate-related disclosure rule on Monday that would require publicly-traded companies to detail climate-related risks to their operations and provide standardized emission metrics. 

The commission’s three Democratic commissioners, including Biden-appointed Chairman Gary Gensler, approved the 510 page proposal (the SEC also put out 3 page fact sheet summary). The commission's sole Republican member voted against it. 

The approved proposal comes as a much needed climate accomplishment for the Biden administration. Since taking office last year, President Biden has seen his ambitious environmental platform repeatedly stymied by the US Senate, which decidedly killed Build Back Better legislation containing massive funding for numerous climate-related initiatives, and recently sank the Federal Reserve candidacy of climate-hawk Sarah Bloom Raskin.

The SEC’s proposed rule would require public companies to disclose scope 1 and 2 emissions produced directly, and to some extent indirectly, by their operations. Where applicable, companies would also have to explain in detail how they intend to meet their publicized climate pledges, including the extent to which such plans rely on (ever-problematic) offsets. 

Where significant (“material”), the proposed rule states that scope 3 emissions, attributable to a company’s suppliers and customers, should be disclosed as well. Practically speaking though, the wording of this aspect of the rule effectively allows companies to omit scope 3 emission disclosures. 

In the lead-up to the proposed rule’s approval, Chairman Gensler clashed with the commission’s other two Democrats over this aspect of the regulations, arguing that requiring scope 3 emission disclosures would weaken the rule’s legal standing upon challenge.

That the rule will face such legal challenge is without question. Though it will be subject to a notice, comment, and amendment period of several months before getting phased-in over several years, West Virginia’s attorney general has been publicly expressing the state’s readiness to lead a legal assault against the rule since last year. 

The SEC’s move to mandate climate-related disclosures from public companies sees the US becoming the latest among numerous jurisdictions, including the EU, UK, and New Zealand, to introduce climate-related regulations in the financial sector. Canadian Securities Administrators, the closest entity in Canada to a national securities regulator, likewise proposed a climate-related disclosure rule in October. 

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Please contact our firm at 647-725-4308 or info@greeneconomylaw.com for legal assistance in connection with climate-related disclosures and other sustainable finance activities in Canada.