Being a publicly traded company comes with a lot of red tape. Even once you’re listed, you have to keep up with consistent reporting, all the while maintaining a certain level of financial and operational transparency. The SEC wants to increase the reporting requirements — for the sake of the planet and ongoing climate change.
According to the SEC, the proposed climate data reporting rules would increase the costs of running a publicly traded business. Naturally, businesses are fighting back on the measures, but increasing climate risk could be enough to push the SEC’s proposed climate change rules ahead anyway.
The SEC’s proposed climate change rules, explained
The SEC wants to make it easier for investors to adopt an ESG (environmental, social, and governance) strategy by increasing environmental data transparency in public companies. To do this, the SEC wants to require public companies to report data like greenhouse gas emissions (potentially even including emissions stemming from their suppliers and customers).
Other data would include risk analyses in regards to flooding, droughts, and other natural disasters that are getting worse as climate change progresses.
The SEC revealed the cost of potential climate change rules.
The SEC has revealed the potential cost of these proposed environmental data reporting rules. According to the data, a smaller publicly traded company would have to pay an extra $490,000 in the first year of reporting and $420,000 annually ongoing. Meanwhile, bigger publicly traded companies would have to pay an extra $640,000 in the first year of reporting and $530,000 annually ongoing.
Critics say the climate change rules are too much, but the argument isn't one sided.
Morrison & Foerster law firm partner David Lynn, who formerly served as a senior SEC official, told reporters the costly rule changes are “standing up to a whole new disclosure regime.”
While many critics say the cost is overwhelming, others disagree. Climate change has the potential to cause harm to companies that don’t take a changing world into account. For example, a government-led shift to renewable energy could squash traditional energy companies with no climate-focused backup plan. This is what happened to PG&E Corp., a Californian utility company that went bankrupt in 2019 after being linked to devastating wildfires.
As for whether the SEC environmental disclosure regulations will proceed, the answer is yes. However, the outcome may not look exactly like the current proposed disclosures, and the phase-in period and accommodations could also shift.
These rules could change the game for ESG and impact investing, an increasingly popular focus for the retail investing population. In 2022, about a third of investors engage in impact investing, with 40 percent of those not yet participating in impact investing considering making their first foray into the strategy this year. Millennials are driving the trend as the generation increases its share of assets held in the market.
Also, climate change is a risk factor that many investors feel they can no longer ignore. A company’s success often depends on just how open to change — whether climate or otherwise — they are.