Securities and Exchange Commission (SEC) reporting and carbon accounting: How they work together

In the US, the SEC holds a firm place in the regulatory landscape of many businesses, especially financial institutions. The SEC plays a critical role in the U.S. financial system, ensuring transparency, enforcing compliance with securities laws, and working to prevent market manipulation and fraud. Let’s explore how the SEC is expanding into carbon emissions reporting. 

What is the Securities and Exchange Commission (SEC)?

The Securities and Exchange Commission (SEC) is a U.S. federal agency responsible for enforcing federal securities laws, proposing securities rules, and regulating the securities industry, including the nation's stock and options exchanges. 

Established by the U.S. Congress in 1934 in the aftermath of the Great Depression, its primary mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. The SEC’s  role in carbon regulation, particularly in the context of climate-related disclosures, has become increasingly significant.

How does the SEC measure carbon regulation?

On March 21, 2022, the U.S. Securities and Exchange Commission suggested amendments to its rules, mandating that companies reveal specific climate-related data. This includes:

• Information on greenhouse gas emissions
• Anticipated climate-related risks
• Strategies for transitioning to greener practices

Incorporating elements from the Task Force on Climate-related Financial Disclosures (TCFD) framework, these proposed changes aim to furnish investors with uniform, comparable, and practical data crucial for investment choices. Additionally, they seek to establish consistent and transparent reporting requirements for issuing companies.

This involvement is part of a broader trend where financial regulators are recognizing the impact of climate change on the stability and performance of companies and the broader economy. Here's an overview of how the SEC is involved in carbon regulation:

Climate-related disclosures

Under a new Climate Disclosure rule, the SEC may require publicly traded companies to disclose certain climate-related information, including their greenhouse gas (GHG) emissions. This proposal aligns with growing investor demand for transparency regarding how companies are affected by and managing climate-related risks. The proposal includes mandatory disclosure of: 

• Direct emissions, also known as scope 1 
• Indirect emissions from purchased electricity or other forms of energy, also known as scope 2

For larger companies, it also proposes requiring disclosures related to indirect emissions from upstream and downstream activities in their value chain - also known as scope 3.

ESG reporting

Environmental, Social, and Governance (ESG) reporting has become a focus area for the SEC. The SEC requires publicly traded companies to disclose material information that would be considered important to investors' decision-making processes. While this doesn't explicitly single out ESG factors, if certain ESG issues (like environmental risks or social practices) are deemed material to a company’s financial health or operations, they must be disclosed under existing SEC rules.

Investor protection and market stability

By requiring transparent disclosure of carbon-related risks, the SEC helps protect investors from investing in companies that might be negatively impacted by climate change or carbon regulation. This also contributes to the overall stability of financial markets by mitigating the risk of sudden market adjustments due to undisclosed climate risks.

SEC climate disclosure rule

The SEC climate disclosure rule refers to a proposed rule by the U.S. Securities and Exchange Commission (SEC) that aims to standardize how publicly traded companies disclose climate-related risks and impacts. This proposed rule is part of the SEC's effort to provide investors with more comprehensive, consistent, and useful information regarding climate-related risks, which can significantly affect a company's financial performance and prospects. 

Reporting carbon emissions to the SEC

Reporting carbon emissions to the U.S. SEC involves several key components, especially as the SEC moves towards more comprehensive and standardized climate-related disclosure requirements. These components are designed to provide investors with clear, consistent, and comparable information about a company's carbon emissions and climate-related risks. Here's an overview of what's involved in reporting carbon emissions to the SEC:

Understanding guidance

Firstly, companies need to be aware of current SEC guidelines regarding climate-related disclosures, which may include specific requirements for reporting carbon emissions. Staying informed about evolving regulations and proposed rules is crucial, as the SEC has been actively working on enhancing climate-related disclosure requirements.

Measurement

Accurate measurement of carbon emissions is foundational. As the SEC doesn’t have any specific guidelines itself, companies may need to use standardized carbon accounting methodologies to ensure consistency and comparability of their emissions data. As an example, an organization might follow the guidance from the Carbon Disclosure Project (CDP).

Data collection and management

Gathering and managing data on carbon emissions requires robust internal systems. This may involve integrating data from various parts of the company, including operations, supply chain, and energy use.

Learn more about the carbon accounting process.

Risk assessment and management

Companies should assess how their carbon emissions and broader climate-related factors impact their business risk profile. This includes understanding how future regulations, market shifts, or physical climate changes could affect operations and financial performance. Developing and reporting on risk management strategies related to carbon emissions and climate change is also essential.

Preparation of disclosure reports

Preparing reports involves not just listing emission figures but also providing context, such as the company's approach to managing carbon emissions, goals for emission reductions, and progress made towards these goals. The report should be clear, comprehensive, and align with any guidelines or frameworks suggested by the SEC, such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

External verification

To enhance the credibility of the reports, companies might seek external verification or assurance of their emissions data and reporting processes. This involves having an independent third party review and validate the company’s emissions reporting for accuracy and adherence to reporting standards.

Stakeholder communication

Effective communication with stakeholders, including investors, customers, and the public, is a key aspect of carbon emissions reporting. Reports should be accessible and understandable to stakeholders, providing clear information on the company's carbon footprint and climate strategy.

Learn more about building transparency and trust with carbon accounting.

Legal and compliance review

Before submitting reports to the SEC, companies should conduct a legal and compliance review to ensure that the disclosures meet all regulatory requirements and do not contain any misleading information.

Incorrect reporting to the U.S. Securities and Exchange Commission (SEC) can have serious consequences for a company and its executives. The severity of these consequences largely depends on the nature and extent of the inaccuracies, whether they were intentional or unintentional, and their impact on investors and the market

SEC filing

Finally, the prepared and reviewed disclosure report is filed with the SEC, typically as part of annual filings such as the 10-K form for public companies.

It’s important to note that carbon emissions reporting is not a one-time event. It requires ongoing monitoring and updating to reflect new data, changes in business operations, and evolving regulatory requirements. Companies need to establish processes for regularly reviewing and updating their emissions data and disclosure practices.

How Minimum can help

Minimum can help organizations to understand their existing carbon output, and create plans to mitigate climate related risks in the future.  Our Emissions Data Platform seamlessly collects and processes emissions data from every corner of your organization and supply chain - no matter the format. Making it the ideal platform for emissions audits and all-round business intelligence. 

Learn more about how Minimum's Emission Data Platform can help to power you all the way to Net Zero today.