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SEC requires climate-change risk disclosure under new plan

(Bloomberg) — Companies will be required to disclose detailed information about their greenhouse gas pollution under a new U.S. Securities and Exchange Commission plan that should show corporations how they’re tackling climate change, one of the Big change.

For the first time, the agency plans to require businesses to outline the risks to a warming planet for their operations when filing registration statements, annual reports or other documents. Some large companies have to report emissions that they do not make themselves, but come from other firms in their supply chain.

The proposal, which the watchdog is considering Monday, sets up a major confrontation with industry lobbyists and Republican politicians, who argue the rules are outside the SEC’s jurisdiction. However, liberal lawmakers, environmental advocates and the SEC say that mom-and-pop investors need the information to make informed decisions.

“Over the generations, the SEC has stepped in when there is a significant need for disclosure of information relevant to investor decisions,” SEC Chairman Gary Gensler said in a statement. “Today’s proposal will help issuers more efficiently and effectively disclose these risks.”

The SEC will also require auditors or other experts to review climate disclosures, which will be phased out over time.

Climate activists will likely cheer the agency’s decision to require large companies to disclose some of their so-called Scope 3 emissions, which are generated by other firms in their supply chain or by customers who use their products. Information that business groups say is too difficult to quantify would not be subject to audit.

Read more: SEC sets up climate conflict with rule on indirect emissions

Some companies, including oil giant Exxon Mobil Corp, have already begun disclosing those emissions.

The proposal follows months of internal debate among the agency’s Democrats. Ultimately, according to an SEC official, the agency settled on using the old but vague concept of “materiality” to determine what information should be disclosed, a term that the agency hopes is legal. The rule may be less lax for challenges.

According to an SEC official, several elements of the plan align with a reporting mechanism known as the Task Force on Climate-Related Financial Disclosure. That voluntary framework calls on corporations to disclose greenhouse gas emissions and report on how to manage global-warming risks. Michael Bloomberg, the founder and majority owner of Bloomberg News’ parent company, is the chairman of that effort.

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