On March 21, the United States Securities and Exchange Commission proposed new requirements for publicly traded companies to make climate-related disclosures. If the rule changes are adopted, the companies must provide information regarding its impact on climate change by measuring its greenhouse gas emissions.
What the disclosures involve
The standardized disclosures would be used to provide investors with actionable, consistent and comparable information, which enable investors to make more informed decisions regarding investments. The SEC says it would require the following from registered entities:
- The registrant’s governance of climate risks and relevant risk management protocols
- How the risks identified will impact or likely impact the company and its finances over the short, medium and long term
- How the risks identified affected or could affect the registrant’s business outlook, business model or strategy
- How severe weather and other climate-related events will affect line items, financial estimates and assumptions typically used in a financial statement
Increase in whistleblower claims
The SEC’s whistleblower program is already hugely successful ($1.2 billion awarded to more than 250 individuals since 2012), but this new climate initiative would likely lead to even more whistleblowers. Registrants who fail to disclose climate risks would be in danger of a securities violation. Individuals aware of the undisclosed information would qualify for protection and financial rewards typically issued by the SEC’s program. Those who contribute to a successful enforcement action would be entitled to 10 to 30% of funds collected by the SEC. The change would also strengthen rules that protect climate-related whistleblowers.
