SEC Proposes ESG Disclosure Rules

U.S. regulators are seeking to standardize climate risk reporting for public companies.

Reviewed by: Dan Mika
Edited by: Dan Mika

The Securities and Exchange Commission has proposed a landmark set of rules aiming to set a minimum floor for public companies to disclose their greenhouse gas emissions and exposure to climate risk, a move that could deeply alter how companies are ranked for ESG investment. 

The SEC seeks to require publicly traded companies to explain how climate risks could materially impact its business over the short and long term, and list climate-related impacts and transition spending as a line item on their financial reports in their annual reports, according to a fact sheet issued Monday morning. The rules also ask companies to report on their progress toward reaching publicly stated goals toward climate change. 

The SEC will also require all companies to list Scope 1 and Scope 2 greenhouse gas emissions with and without carbon offset figures. Firms will also be asked to explain their Scope 3 emissions generated from its supply chain, but will waive that requirement for companies with less than $250 million in public float and provide safe harbor protections for all companies on that reporting. 

Scope 1 refers to direct emissions from a company’s operations, while Scope 2 is indirect emissions from purchased power. The Scope 3 emissions category covers all of the other “indirect emissions” associated with a company’s operations via its supply chain.


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“Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in those disclosures. That principle applies equally to our environmental-related disclosures,” said SEC Chairman Gary Gensler. 

If approved, companies with more than $700 million in shares outstanding would have to start these disclosures for fiscal year 2023 and make Scope 3 emissions the next fiscal year. Smaller companies would be required to start disclosing in the following fiscal years based on their status as accelerated filers. 

Between one-third and up to half of public companies are already estimated to be reporting based on various studies, according to SEC staffers. 

Hester Peirce, the SEC’s lone opponent of the proposal, argued that it will force company managers to view their firms’ performance and futures not through their own lenses, but through the lenses of nonstakeholders. 

“The proposal, by contrast, tells corporate managers how regulators, doing the bidding of an array of non-investor stakeholders, expect them to run their companies,” she said. 

The public may offer comment on the proposal for 60 days after publication on the SEC’s website, but a vote to finalize the rule could take months and face legal challenges. 


Contact Dan Mika at [email protected], and follow him on Twitter 

Dan Mika is a reporter for He has previously covered business for the Ames Tribune and Cedar Rapids Gazette in Iowa, and BizWest Media in Fort Collins, Colorado. Dan holds a bachelor's degree in journalism from Truman State University.