SEC releases rule standardizing emissions disclosures

In early March, the Securities and Exchange Commission released a rule that standardizes public companies’ climate-related disclosures. Mercy Investment Services and other investors who have called for companies to report on their emissions applauded the SEC’s steps toward standardization and mandate.

Companies will be required to report their Scope 1 (related to companies’ direct operations) and Scope 2 (related to companies’ purchased electricity) emissions in their annual financial statements. The largest companies will be required to report by 2026 and medium-sized companies by 2028; the smallest companies will not be required to report their emissions in their financial reports. Scope 3 emissions (indirect emissions from their supply chains or use of their products) do not have to be reported. The rule also mandates that companies report on how they’re managing material risks related to climate change including physical climate risks and business transition risks.

The SEC has temporarily paused the rule after multiple companies and states filed lawsuits. The lawsuits have been consolidated and will be heard by the Eighth Circuit Court of Appeals in Missouri. Mercy Investment Services will continue to monitor the litigation.

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