SEC proposes climate risk disclosures: TL;DR

SEC proposes climate risk disclosures: TL;DR

What you need to know about new climate risk rules proposed by US Securities and Exchange Commission
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What happened?

On March 21, 2022, the US Securities and Exchange Commission (SEC) announced proposed climate-risk disclosure rules, which would require public companies to disclose information about a broad range of climate-related risks and emissions, as well as how they intend to reach their climate targets. If implemented, these rules will be phased in over time between 2023 and 2026. 

What you need to know: 

  1. This is good news for climate action. The proposed rules bring the US into alignment with many other countries, including the UK, New Zealand, and Japan, which have implemented or are proposing to implement similar climate disclosure rules for public companies. 
  2. The proposed rules would require reporting companies to have their emissions disclosures (i.e. Scope 1, 2 and 3 emissions) verified by third parties, including carbon accounting providers or other qualified verifiers.  
  3. The rules would also require companies who’ve publicly set climate targets to disclose their use of carbon credits or RECs (renewable energy certificates) for offsetting purposes towards reaching that target.

Who does this impact?

  • US-based public companies (including foreign private issuers) would be required to comply with the rules. 
  • US-based public companies (including foreign private issuers) who’ve set public net-zero goals would have to report on their use of carbon credits for offsetting. 
  • Suppliers of carbon credits who’s businesses may be impacted by these reporting requirements.

Why it matters:

  • The proposed rules will increase transparency and reduce greenwashing by surfacing information about companies’ emissions, plans for reductions, and use of carbon credits for offsetting. 
  • For public companies, the use of carbon credits for offsetting will become reportable and part of the public record. We expect this to increase demand for high-quality credits.

What happens next? 

The SEC is inviting comments on the proposed rules until May 20, 2022. 

Patch will be reviewing in further detail and submitting comments within this time. (If you have feedback to share with us, reach out!

Some additional thoughts…

We’ll be watching to see how these proposed rules, if implemented, will impact corporate demand for carbon credits for offsetting purposes. There’s already a shift taking place with some companies moving away from the use of carbon credits for offsetting to favor broader investments in carbon removal—untethered to a particular net-zero goal. This will help to scale carbon removal markets, which is critical to helping achieve wide-ranging global climate targets. 

We’re also following closely whether the SEC’s proposed rules will have the unintended consequence of disincentivizing corporate net-zero targets. If companies who’ve made a public net-zero commitment are required to disclose credit purchases for offsetting, will those who haven’t be dissuaded from following suit? 

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