One of the largest regulatory debates within Green Molecules is with the recently promulgated SEC Climate-Related Disclosures. Should the SEC take issue with climate? Should the EPA take issue with securities? Passionate innovators, corporations and stakeholders in the Green Molecules community are on all sides of the discussion.
What are your thoughts on the SEC Climate-Related Disclosures?
If you answered #1 or #2, you are probably right (or wrong, depending on who you ask). If you answered #3 or #4 you likely work for the SEC or, based on the sheer number of lawsuits from both sides of the aisle, delusional.
Why have these rules been so contested? What do they say and what do they mean for reporting entities? We analyzed the new rules, with a little help from AI to scour through the many pages, and here are the key aspects of the SEC Climate-Related Disclosure Rules.
Comprehensive Disclosures: Companies are required to report on climate-related risks likely to impact their business strategy, financial condition, or operational results significantly. This includes both actual and potential effects, efforts to mitigate these risks, and any relevant management strategies or oversight by the board of directors.
Scope 1 and Scope 2 Emissions Reporting: The rule mandates that reporting entities disclose “material” Scope 1 and Scope 2 greenhouse gas emissions. These disclosures will eventually need to be verified by an attestation report to ensure accuracy and reliability. Note: here is where the definition of “material” is not clear yet and what GHG accounting standards to employ.
Financial Impacts of Climate-Related Events: Companies must disclose the financial implications of severe weather events and other natural conditions, including the associated costs, expenditures, and losses. This also extends to the financial effects of pursuing climate-related targets or goals. This represents an opportunity for startups working in the climate risk space, and as a provision both encourages and discourages investments in pursuit of climate-related targets (as the financial effects may be negative for example).
Integration into SEC Filings: Unlike voluntary sustainability reports, these climate disclosures must be included in a company's SEC filings, such as annual reports and registration statements. The SEC views this as a way to enhance their reliability and accessibility for investors.
Implementation and Compliance: The SEC has designed a phased-in approach for compliance based on the filer's status, ensuring a gradual adaptation to these new requirements. This staggered implementation aims to balance the demand for enhanced climate disclosure with the practicalities of meeting these new reporting standards
Criticisms and Debates: As we said above, this rule came with a lot controversy. Criticism (and lawsuits) are coming from both sides of the aisle, with one of the main concerns around the fact that these rules represents an overreach of the SEC's mandate, turning the Commission into a de facto climate regulator. Concerns have also been raised about the rule's potential to divert company resources toward compliance at the expense of other operational areas. Furthermore, other voices have highlighted the procedural aspects of rule adoption, suggesting that the significant changes made from the proposal to the final rule warranted a re-proposal for further public comment. And if that is not enough, some folks are also saying that these rules are “weak” and as such are suing for stronger regulation. Pick your side.
Are these rules here to stay? Hard to say. For now the only thing we can count on is a long litigation process. In the meantime, at ECV we will continue to follow the tremendous innovation in Green Molecules and we will cheer for the tangible economic impact it will have for decades to come - and more!
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