Many companies will also likely have to outsource the estimation and quantification of emissions and climate risks to third-party companies, where there have been concerns about higher costs, conflicts of interest and greenwashing.

The SEC is not the first to adopt climate disclosure rules.

A similar rule went into effect in the European Union in January 2024.

California has an even more stringent rule, signed into law in October 2023. It will require both publicly listed and privately held firms to fully and unconditionally disclose all of Scope 1, 2 and 3 emissions when it goes into effect in 2026 and 2027. Since California is among the world’s largest economies, its regulations are already expected to have wide effects on corporations around the world.

Hardcore proponents of the SEC rule who wanted California-level disclosures across the board argue that Scope 3 emissions need to be disclosed given that they compose the largest fraction of all carbon emissions.

Skeptics of the rule, including two of the five SEC commissioners, question whether there needs to be any rule at all if things are inevitably watered down anyway.

Given the recent conservative backlash against companies focusing on ESG issues and the ensuing retrenchment by several institutional investors from their previous climate commitments, it will be interesting to see how the new corporate climate disclosures will actually affect investors’ and corporations’ decisions.

This article is republished from The Conversation, a nonprofit, independent news organization bringing you facts and trustworthy analysis to help you make sense of our complex world. It was written by: Sehoon Kim, University of Florida

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Sehoon Kim does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.