SEC Proposes Mandatory Climate Disclosure for Businesses

The Securities and Exchange Commission (SEC) is set to vote on a proposed climate disclosure rule on Wednesday. This rule would mandate businesses to disclose their greenhouse gas emissions, a practice already implemented in China and the European Union. The move aims to improve transparency around a company’s environmental impact, making them accountable for their environmental footprints.

The proposal gains importance among both regulators and consumers. Its implementation could create considerable advantages for startups operating in this sector as it could stimulate growth and innovation. It is viewed as not just beneficial to environmental practices and decision-making but also offers a great potential for upward growth and innovation.

For meaningful measurement of environmental impact, businesses need to accurately distinguish between Scope 1, 2, and 3 emissions. Scope 1 emissions come directly from company operations, Scope 2 emissions stem from the energy acquired for operations, and Scope 3 emissions cover pollution across the entire supply chain.

While businesses essentially control Scope 1 and 2 emissions, Scope 3, or ‘value chain emissions’, are the indirect results of a company’s activities. They encompass emissions from both upstream and downstream activities like the production of purchased materials and waste disposal. These different scopes guide companies in creating effective strategies for managing and reducing their overall greenhouse gas emissions.

The proposal also includes regulations about Scope 3 emissions, which remains a topic of debate among high-profile companies. Some oppose Scope 3 disclosure citing potential competitiveness hampering by imposing unrealistic and costly emissions reduction targets. Others support it, pointing out that such disclosure is crucial to achieve global climate goals and maintain transparency in a business’s environmental impact.

Scope 1 and 2 emissions also play a significant role in the U.S.’s carbon pollution, even if Scope 3 emissions are not included in the final draft. It could lead companies to enhance their reporting procedures and seek consultation from external experts. Possible collaborations with startups like Arcadia, SustainCERT, Planet FWD, and CarbonChain, which specialize in creating innovative solutions for precise carbon accounting, are also predictable. Furthermore, these startups allow companies to more accurately measure their carbon footprints and implement effective mitigation plans.

These climate-tech startups are poised to assist businesses in managing and reporting their emissions. Each has its own strategic focus: Arcadia specializes in electricity-related emissions, SustainCERT manages emissions across all scopes, Planet FWD provides a carbon evaluation platform for consumer goods companies, and CarbonChain offers a comprehensive approach, with data on 80% of global emissions. Their role in helping businesses monitor, manage and report their carbon emissions is crucial in paving the way toward a more sustainable global industry.