Ceres welcomes landmark SEC rule on corporate climate disclosure

Ceres welcomes the U.S. Securities and Exchange Commission’s (SEC) adoption of the first-ever federal rule mandating the disclosure of climate-related risks from all U.S. public companies. In a 3-2 vote, the Commissioners adopted the Enhancement and Standardization of Climate-Related Disclosures for Investors, which will require climate disclosures in companies’ registration statements and annual reports.

“We congratulate the SEC on this important step forward to bring the U.S. closer in line with its global counterparts. Although this final rule does not go far enough compared to international standards and the SEC’s 2022 proposal, it will start to meet the demand for transparency that investors and companies have long sought. Consistent, comparable information on physical and transition climate-related risks is vital to decision-making around strategy and investments,” said Ceres President and CEO Mindy Lubber. “The SEC’s new rule will now mandate the disclosure of that information, giving investors much-needed insight on how companies are managing the material financial risks and opportunities presented by climate change.”

“For most companies and financial institutions, indirect emissions throughout a company’s value chain represent the largest source of a company’s transition risk. While we are disappointed the rule does not include key provisions from their 2022 proposal, including the mandate of the disclosure of Scope 3 emissions, investor demand for the disclosure of Scope 3 emissions continues to grow and many companies will be required to disclose this data in other jurisdictions,” Lubber added.

Ceres and investors have long advocated for mandatory corporate climate disclosure, resulting in the SEC issuing interpretive guidance in 2010 and adopting today’s mandatory rule. More recently, the Ceres Accelerator for Sustainable Capital Markets released an analysis, Addressing Climate as a Systemic Risk: A call to action for U.S. financial regulators, outlining the systemic, financially material risks of climate change and the urgent need for a mandatory disclosure rule. In 2022, the Global Investor Statement to Governments on the Climate Crisis, backed by more than 500 investors with over $40 trillion in assets under management, called on governments around the world to commit to implementing mandatory disclosure requirements aligned with the Taskforce on Climate-Related Disclosures (TCFD).

Since the proposed rule was released in March 2022, Ceres has actively engaged with investors and companies to educate and prepare them as they align their businesses with the new disclosure requirements. This included a public briefing in April 2022 on the proposed rule with Chair Gensler. Ceres responded to SEC’s public comment process and sent additional submissions including: a compilation of articles demonstrating that businesses are already disclosing Scope 3 emissions, data on business support for a climate disclosure rule, investor use case studies, issuers’ support for Scope 1 and Scope 2 disclosure, as well as evidence of increased disclosures of emissions data and TCFD-aligned information.

“We urge companies to disclose this vital information in their 10-Ks as they earnestly work to align their business strategies with the transition to a net zero emissions economy,” said Steven Rothstein, managing director for the Ceres Accelerator for Sustainable Capital Markets at Ceres. “We commend SEC Chair Gary Gensler, the SEC Commissioners, and the SEC staff for their leadership on this issue and for fulfilling their responsibility to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation.”

The new mandatory rule complements the global standards issued by the International Sustainability Standards Board and the European Union’s Corporate Sustainability Reporting Directive. The adoption of this rule follows California’s two corporate climate disclosure laws, which apply to both public and private companies that exceed certain revenue thresholds.

“We see California’s corporate climate disclosure laws as critical measures to ensure that companies are transparent about the climate-related risks they face and the measures they take to manage those risks,” said Lubber. “The laws serve as an important complement to the SEC’s climate disclosure rule. The disclosures from companies doing business in California and publicly traded companies under the jurisdiction of the SEC will give the public consistent and reliable information to inform investment selection and other key decision-making.”

Extreme weather now costs the U.S. $150 billion a year. 2023 set a record for events that cost more than $1 billion each, with costly floods, fires and storms occurring roughly every three weeks. The U.S. has sustained hundreds of weather disasters with the cumulative cost for these exceeding $2.7 trillion over the last four decades.

Lubber added, “With record high temperatures and billion-dollar catastrophic weather events happening more frequently and with greater intensity, today’s regulatory action is crucial for long-term financial stability. As the adage goes, you can’t manage what you don’t measure.”

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