The U.S. Securities and Exchange Commission is preparing to announce new rules on climate change that are expected to force U.S. corporations to report their greenhouse gas emissions, putting further pressure on the oil and gas industry.
The details of the rule making are expected to be made public today. The SEC is expected to create a standardized reporting protocol to provide investors with a clear picture of different industries’ emissions and their progress in adapting their business to a warming planet, according to observers closely tracking the process.
That would allow asset management firms and retirement funds to easily compare the greenhouse gas emissions of Exxon Mobil against Occidental Petroleum or solar and wind energy companies, potentially driving investment toward firms that can produce energy with the least impact on the climate.
“If you have to disclose all your emissions, investors can see how you stack up,” said Ben Cahill, a senior fellow at the Center for Strategic and International Studies, a Washington think tank. “That’s the whole point of SEC rules. Everyone has to provide the same data in the same format.”
The SEC’s focus on climate disclosure follows increasing scrutiny by investors on how oil companies and other large emitters are readying themselves for a global movement to reduce greenhouse gas emissions to net zero by 2050.
With so-called sustainable investing on the rise, companies across the board are making plans to get their operations to net zero. But in doing so they employ a variety of reporting schemes, often making it difficult for investors to compare companies and determine the efficacy of their efforts, said Isabel Munilla, a director at Ceres, a nonprofit that advises investors on climate change.
“The train has already left the station with other regulators,” Munilla said. “There’s a gross inefficiency in the U.S. marketplace in the way this information is flowing. As a result, those companies that are innovating are getting lost in the sauce.”
The European Union, Hong Kong and Australia have already set standardized regulations on climate reporting, she said.
The new regulations are likely to create more headaches for oil companies in Texas and other states, which have seen their stock price decline in recent years amid questions about their long-term strategy for a decarbonized world.
At a hearing before the House Financial Services Committee in October, SEC Chairman Gary Gensler, who was appointed by President Joe Biden last year, testified he plans to create a climate reporting system that enables “consistent, comparable and decision-useful disclosures around climate risk.”
“These proposals will be informed by economic analysis and will be put out to public comment, so that we can have robust public discussion as to what information matters most to investors in these areas.”
The rules to be released Monday are only a draft, with a final rule not expected until the end of the year. At that point, companies could challenge the SEC in court.
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