Corporations love to talk about what they are doing to combat climate change. In TV ads and sustainability reports, corporations tout their efforts to increase efficiency, utilize clean energy, and ultimately achieve "net-zero" emissions. 

But as Popular Information previously reported, these claims are often misleading and incomplete. A February report by the NewClimate Institute of 25 major corporations that pledged to reach net-zero found they have collectively made commitments to reduce just 20% of their current carbon footprint by 2040. The NewClimate Institute also found Many of the plans to reach net-zero contain  "subtle details and loopholes" that allow significant carbon emissions to continue or rely on dubious carbon offsets that do not actually contribute to carbon emissions reductions. 

Amazon, for example, presents itself as a corporate leader on climate change. It even purchased the naming rights for the home of the NHL's Seattle Kraken and called it "Climate Pledge Arena." But the NewClimate Institute's report found that Amazon's pledge to reach net-zero emissions "remains unsubstantiated without any explicit reduction target for the company’s own emissions." Amazon provides almost no information on so-called "Scope 3" emissions, which includes emissions from the goods sold by Amazon.

Amazon and other corporations defend their plans as validated by a third party, the Science-Based Targets initiative (SBTi). But according to New Climate Institute, SBTi and other “standard-setting initiatives are lending credibility to low quality and misleading targets.” SBTIi also receives significant funding from the corporations it is evaluating, including Amazon. 

In other words, voluntary efforts to disclose plans to address climate change have been effective as a public relations tool. But these disclosures are providing a bogus image to the public. 

The Securities and Exchange Commission (SEC) has a plan to change that. Last week the SEC proposed a new rule that would require public companies "to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business." SEC chairman Gary Gensler said the new rule "would provide investors with consistent, comparable, and decision-useful information for making their investment decisions." Investors, and the public, would know which companies are committed to addressing climate change and which are just blowing smoke. 

But the nation's largest corporate lobbying group is already attacking the rule as too "prescriptive" and "unnecessarily broad." 

The proposed SEC climate rule, explained

The SEC would require public companies to disclose climate-related information in their annual reports, known as the 10-K. There are a number of disclosures required, but two are most significant:

1. Public companies would be required to disclose their greenhouse gas emissions. This would include Scope 1 emissions (from sources owned by the company) and Scope 2 emissions (from the company's energy use). These emissions would have to be independently audited. 

Disclosure for Scope 3 emissions, which include the climate impact of the company's supply chain, including the products it sells, would be more limited. Scope 3 emissions disclosures are required if the company determines the emissions are "material" for investors or if such emissions are included in a company's public climate goals. Since these emissions are more difficult to calculate, there would be a longer phase-in and protection for legal liability if the estimates are provided in good faith. Smaller companies would be exempted entirely. 

2. Public companies that make public climate pledges would be required to make detailed disclosures. Companies would no longer be permitted to claim they are on a path to net-zero emissions without providing concrete information. Once a company makes a public climate pledge, it would be required to disclose the "scope of activities and emissions included in the target, the defined time horizon by which the target is intended to be achieved, and any interim targets." The company would also detail how it "intends to meet its climate-related targets or goals." Each annual report would need to include "data to indicate whether the registrant is making progress toward meeting the target or goal and how such progress has been achieved." 

It's important to note that the proposed rule does not require corporations to do anything. It simply requires companies to disclose their activities. Companies are not required to adopt a net-zero emissions plan. If they choose to do so, however, they need to be specific about the scope of their pledge, their plan, and their progress. There is nothing in the proposal that prohibits companies from having no plan to reduce emissions and, year after year, report increasing greenhouse gas emissions. 

The purpose of the rule is to empower investors. If investors believe that climate change is a business risk (as many professional investors do) the rule will provide the information invetors need to evaluate whether a company is managing the risk effectively. Investors who don't believe climate change is a risk are free to ignore this information or even direct their investments to companies with no plans to reduce emissions. 

That's why investment fund managers have been supportive of the proposed rule. "Having consistent, comparable, and reliable data makes it easier for fund managers to better assess current and future sustainability-related risks on behalf of the millions of investors who invest in their funds," Eric Pan, president of the Investment Company Institute, said. 

The SEC's legal authority to issue the rule is grounded in the concept of materiality. Information is considered "material" — and disclosure can be required by the SEC — if "there is a substantial likelihood that a reasonable shareholder would consider it important” in making an investment. As Gensler noted when the proposed rule was introduced, "investors with $130 trillion in assets under management have requested that companies disclose their climate risks."

The Chamber attacks climate disclosure

The U.S. Chamber of Commerce (the Chamber), the nation's largest corporate lobbying organization, says it takes climate change very seriously. It represents Amazon, Microsoft, Apple, and hundreds of other major companies that claim to be committed to combating climate change. 

On its website, the Chamber says "inaction is not an option" on climate change. The Chamber says it supports "market-based solutions to reduce emissions." Failure to act, according to the Chamber, will harm "the competitiveness of the U.S. economy." 

The proposed rule from the SEC is a market-based solution to reduce emissions. It does not require any company to reduce emissions. Instead, it gives investors the information they need to direct capital to companies that are taking climate change seriously. If enough investors think this is important, it could influence companies to change their behavior. 

The Chamber, however, has come out swinging against the SEC's proposed rule. According to the Chamber, voluntary disclosure is working well. "Public companies have been and will continue to meet the interests of their investors on climate-related information," the Chamber said in a statement. 

The Chamber said the rules are too "prescriptive" and would require "companies provide information in securities filings that are not material to investors." (The Chamber's statement does not specify what kinds of climate-related disclosures it believes are "not material.") It also suggests the rule is "overly broad" without detailing what provisions should be narrowed. 

Instead, the Chamber cites its 2019 report on environmental issues that suggested whether or not to include information on environmental impact on an SEC report should be determined by the corporation itself. 

The Chamber also played a key role in defeating President Biden's Build Back Better plan, which included historic investments to combat climate change.