The SEC Will Regulate Climate

Yesterday the U.S. Securities and Exchange Commission proposed a new set of rules requiring public companies to make “certain climate-related disclosures” in their public reports. Here is the 510-page proposal. There is a lot. But then, why wouldn’t there be? The SEC has had 88 years to create and refine a system of rules regulating how companies disclose their financial performance. Now it is building a parallel system regulating how companies disclose their environmental performance. Of course that is complicated.

The rules will require companies to describe what climate-related risks they face and how they manage those risks. If a company has a “transition plan” to adapt to a warming world, or if it “uses scenario analysis to assess the resilience of its business strategy to climate-related risks,” or if it “uses an internal carbon price” to budget for emissions, it will have to describe how it uses those tools. Companies that use carbon offsets will have to disclose and quantify that. There will be disclosures in companies’ financial statements describing how the financials are affected by climate risks. These rules reference the recommendations of the Task Force on Climate-Related Financial Disclosures; “Michael Bloomberg, founder and majority owner of the parent company of Bloomberg News, is chairman of” the TCFD.