By Katanga Johnson

WASHINGTON, (Reuters) – The U.S. Securities regulator unveiled Monday a groundbreaking proposal requiring U.S. listed companies to disclose climate-related risks or greenhouse gas emissions. This is part of President Joe Biden’s push to reduce financial risk from global warming.

Investors will be able to better understand how climate changes affect companies through the long-awaited draft rule by the U.S Securities and Exchange Commission (SEC). However, Corporate America is expected to have to report more.

Its key requirement is that companies disclose all their greenhouse gas emissions (Scope 1 and 2), and those of suppliers or partners.

They must also disclose “actual and likely material effects” that climate-related risk will have on company’s strategy, business, and outlook. This could include both physical risks, as well as the impact of new regulations like a carbon tax.

Gary Gensler is the chair of SEC. He stated that the agency responded to investors who wanted consistent, comparable information regarding climate-related risks which could impact a company’s financial performance.

He said, “Investors and businesses alike will benefit from clear road rules.”

Advocate investors and progressives have called for Scope 3 emission disclosure to be required by the SEC in order to motivate companies to use less methane and carbon dioxide.

The corporations have been pushing for a tighter rule to reduce compliance costs. Scope 3 requirements will require carve outs that are based on company size. They will be gradually implemented.

Tracey Lewis from Washington advocacy group Public Citizen, said that “This proposal will shine a light on a path toward President Biden’s priority of disclosing the climate risk to investors as well as all other areas of society.” There will be many critics. There will be many people who try to discredit it, most likely from the Left.

Public feedback will be sought on the draft and it is expected to be completed later in the year.

LEGAL CHALLENGES

The proposal’s expected contentiousness meant that the SEC had to protect it from possible legal challenges. Six sources confirmed this to Reuters.

Business groups argue that Scope 3 emissions can’t be calculated using an agreed method. Companies would have to provide more detail than necessary and risk costly lawsuits if third parties get the wrong data.

Any legal challenges to the SEC’s authority to demand Scope 3 emissions data will be likely to argue that it lacks the authority, as the SEC’s single Republican Commissioner stated.

Investors have asked for better data on climate change, which has been difficult to find and disorganized.

We do have the information. “The problem is that it’s a hot mess,” stated Isabel Munilla (director of U.S. financial regulation at Washington’s Ceres Accelerator to Sustainable Capital Markets).

Experts believe these facts show that the SEC has enough support to rule.

John Coates from Harvard University said that no one who has considered the evidence honestly could be in doubt whether investors demanded disclosure. He was acting director of corporate finance for the SEC during the initial stages of the rule.