SEC Votes on New Rule to Make Companies Reveal Climate Risks

SEC Votes on New Rule to Make Companies Reveal Climate Risks

The U.S. Securities and Exchange Commission (SEC) voted on March 6 to adopt a new rule that would require thousands of publicly traded companies to disclose how climate change affects their financial performance and prospects. The rule, which is the first of its kind in the U.S., is a major step for the SEC to address the growing demand from investors and regulators for more transparency and accountability on environmental, social and governance (ESG) issues.

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The rule applies to companies that are deemed “gatekeepers” by the SEC, meaning they have a significant impact on the online ecosystem and the ability of other businesses to reach consumers. The criteria for being a gatekeeper include having more than 45 million monthly active users in the U.S., generating more than 6.5 billion dollars in annual revenue in the U.S., and providing a core platform service such as search, social media, online advertising, cloud computing, or app stores.


Under the rule, gatekeepers must report their greenhouse gas emissions in two categories: Scope 1, which are emissions from their own operations, and Scope 2, which are emissions from the electricity they use. They must also disclose the financial impacts of climate change on their business, such as costs from extreme weather events, regulatory changes, or transition risks. The rule also requires gatekeepers to provide a qualitative discussion of their climate strategy, risks, opportunities, and governance.
The SEC said the rule is based on the principle of materiality, meaning that companies should disclose information that is relevant and useful for investors to make informed decisions. The rule also gives companies some flexibility in how they measure and report their emissions and impacts, as long as they explain their methodology and assumptions.

The rule is expected to have a significant impact on the business models and strategies of big tech companies, especially those based in the U.S., such as Google, Facebook, Amazon, Apple, and Microsoft. These companies have been facing increasing pressure from investors, activists, and lawmakers to reduce their carbon footprint and align their practices with the goals of the Paris Agreement on climate change. Some of these companies have already announced plans to achieve net-zero emissions by 2030 or 2040, but the rule will make them more accountable and comparable.
The rule is also part of a broader effort by the SEC to modernize its disclosure framework and to respond to the challenges and opportunities of the digital economy. The SEC has also proposed the Digital Services Act (DSA), which aims to create a safer and more responsible online environment by imposing new rules and responsibilities on online platforms, especially regarding illegal or harmful content. The SEC hopes that the rule and the DSA will set a new standard for ESG disclosure and regulation and inspire other countries to follow suit.

The rule and the DSA are still subject to the approval of the U.S. Congress, which could take up to a year, and the final texts could differ from the original proposals. However, the rule and the DSA have already generated a lot of attention and debate, both within and outside the U.S., and have signaled the SEC’s determination to protect the public interest and promote the public good in the digital age.
Source : US NEWS

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