The SEC voted on Wednesday to require public companies to report a portion of their greenhouse gas emissions and their exposure to risks from climate change.
The new rules will mandate certain companies to report their Scope 1 and 2 emissions, which stem from direct operations and energy use. However, Scope 3 emissions – pollution generated indirectly throughout their supply chains or by customers using their products or services – are not included.
Although privately held companies like startups are not subject to these rules, there are opportunities for those in the carbon tracking, accounting, and management space. Many such companies already serve businesses that seek to identify and reduce their carbon footprints, and the SEC’s regulations may encourage more entrepreneurs to enter this market.
The SEC has been reviewing climate-related disclosures since 2022, and during the rule development process, received over 24,000 comments. The proposal was met with mixed reactions from publicly traded companies under the SEC’s supervision.
Some companies such as Amazon, Vanguard, Ralph Lauren, and Chevron supported the inclusion of Scope 3 disclosures. Many companies, both public and private, already voluntarily track these emissions. However, others like Walmart, Fidelity, Gap, Southwest Airlines, and BlackRock opposed the inclusion, citing concerns over accuracy.
Over the years, several startups have leveraged AI to automate and enhance Scope 3 estimations. This trend is expected to continue.
By implementing these new rules, the SEC is catching up with other major economies like China and the EU, both of which have existing greenhouse gas reporting requirements. Although the new rules are less stringent than initially proposed, they signal a shift in the landscape: Emissions and climate risk disclosures are becoming crucial metrics for investors evaluating companies.
