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- Scoop Market Mysteries 4-3-22 - SEC Climate Rule
Scoop Market Mysteries 4-3-22 - SEC Climate Rule
🔎 Market Mysteries: How big of a deal is the SEC's new climate rule?
Market Mysteries of the week
How big of a deal is the SEC's new climate rule?
Answer:
It's a huge deal.
The country's primary financial regulator has officially recognized that climate change poses a significant enough risk to every major corporations' business that they all need to be measuring and reporting on their environmental impacts.
What does the SEC do?
The Securities and Exchange Commission (
) is an independent federal agency that
protects investors
by regulating public companies' stock offerings and
ensuring that public companies provide investors with timely and accurate information about their business practices
.
What is the SEC's proposed new rule?
The new rule mandates monitoring and reporting of climate-related risks.
It will require US companies to publicly disclose climate-related targets they have in place (i.e., net-zero and scope emissions goals), how climate risks may affect their revenues and profitability, and whether they are taking action to minimize the impacts of climate change on their activities.
The proposed rule will require companies to
from their operations (
Scope 1 emissions
) and emissions resulting from electricity and energy use (
Scope 2 emissions
). It would also require some disclosure of indirect emissions (
Scope 3
). Scope 3 emissions result from the use of products the company sells. Companies that already have explicit reduction goals for Scope 3 emissions will be required to disclose this information.
, while smaller companies will be required to report for 2024. Smaller companies are exempt from the Scope 3 disclosure requirement, but smaller suppliers may face pressure from larger customers to take action.
Why is this important?
Public climate disclosure will help provide investors with clarity on a company's climate impact. Currently,
not every company is required to disclose
this information.
and those within specific sectors (oil and gas, waste, refineries, electronics manufacturing, etc.) must report their emissions annually to the EPA.
or are mandated by the state legislature.
Voluntary disclosures can be unreliable, inconsistent, and incomparable across companies.
So investors are left in the dark about financial risks a company may face.
.
Why is this happening now?
Whether it be
,
,
, or
, there's
indicating that
climate change threatens the stability of financial markets and poses risks to the US economy.
Investors have realized the escalating impact and have
started shifting their money to funds that assess holistic Environmental, Social, and Governance (ESG) factors
. In 2020, ESG risk-monitoring funds received
. The
, with ESG-related assets growing by 53%.
The SEC's rule is in response to
increased demand from investors for consistent and comparable information
about climate risks that may impact a company's financial performance. Last year there were a
, as investors asked companies to analyze, report, and strategize on climate-related risks. But not only are there more proposals, but
. For the first time last year, average votes in favor of climate-related shareholder proposals surpassed fifty percent.
Climate concern is not just for the hipsters anymore.
The US is behind the curve
internationally on climate regulations. The European Union has already implemented
that apply to large companies and financial institutions, and the UK mandates Scope 1 and 2 greenhouse emissions reporting for large companies.
What's next?
There will likely be
plenty of legal challenges
, especially from companies like those in the fossil fuel industry who will bear the most considerable burden of disclosure. Some argue that the proposed regulations are
. While others applaud the long-awaited decision, saying it will help investors make more informed decisions. The SEC will be accepting comments on the proposed rule for the next 60 days. The agency will potentially revise the rule in response before holding a second vote to finalize the regulation.
We see this as a
huge symbolic step forward
in encouraging further disclosure of the holistic impacts of companies, increasing transparency and enabling accountability. Even if the law's implementation is delayed by years of legal battles, it acknowledges the direction of change and encourages companies to start investing in monitoring and disclosure capabilities. We'll likely see more voluntary disclosure on the way to regulated disclosure.
Look out for updates on the release of our app,
which will include this kind of climate-related data on every major corporation. We'll be slowly rolling it out for testing soon with our most passionate audience (you). Can't wait to show you!!
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