The Securities and Exchange Commission (SEC) has recently approved new rules that mandate public companies to disclose a portion of their greenhouse gas emissions and their vulnerability to climate change risks. The regulations will necessitate certain companies to report their Scope 1 and 2 emissions, which are direct operational and energy usage emissions. However, it excludes Scope 3 emissions, which encompass indirect pollution generated throughout their supply chains or when customers use their products or services.
Key Takeaway
The SEC’s adoption of new climate disclosure rules, while not directly applicable to startups, presents significant opportunities for carbon accounting and management startups. The regulations emphasize the growing importance of emissions and climate risk disclosures as essential metrics for evaluating companies.
Opportunities for Carbon Accounting Startups
While these rules do not directly apply to privately held companies such as startups, they present significant opportunities for those operating in the carbon tracking, accounting, and management space. The new regulations could potentially inspire more founders to venture into this sector, as they create a demand for services aimed at assisting companies in identifying and mitigating their carbon footprints.
Reception and Impact
The SEC’s consideration of climate-related disclosures began in 2022, and during the rule development process, the agency received over 24,000 comments. The proposal garnered mixed reactions from publicly traded companies under the SEC’s oversight. Some companies, including Amazon, Vanguard, Ralph Lauren, and Chevron, expressed support for Scope 3 disclosures, as they already voluntarily track these emissions. Conversely, others such as Walmart, Fidelity, Gap, Southwest Airlines, and BlackRock opposed the inclusion of Scope 3, citing concerns about its accuracy.
Technological Advancements and Global Alignment
In recent years, several startups have leveraged AI to automate and enhance Scope 3 estimations, and this trend is expected to persist. The SEC’s adoption of these new rules reflects an effort to catch up with other major economies like China and the EU, both of which have existing greenhouse gas reporting requirements. Although the finalized rules are notably diluted from the initial proposal, they signify a pivotal development: Emissions and climate risk disclosures are poised to become crucial data points for investors assessing companies.
