The U.S. Securities and Exchange Commission issued a proposal March 21—both anticipated and feared—that would require publicly-traded companies to standardize disclosure for the first time of climate-related business risks such as those related to severe weather and decarbonization. Exchange-listed firms would also have to report greenhouse gas emissions, their own and in the supply chain, creating a major reporting mandate. The  rules also apply to firms listed on overseas exchanges that operate in the U.S.

Under the proposed rule, companies would have to report their direct and indirect emissions, known as Scope 1 and 2 emissions, but also so-called Scope 3 emissions, which are generated by their suppliers and partners, if these are considered “material”—information that investors need to know.

While a number of public firms already report emissions as part of sustainability updates, there is wide variation as to what is reported, according to the SEC, which says larger public firms would have to submit their numbers to independent auditors to be verified. Proponents see the Scope 3 requirement as potentially capturing emissions by private firms not subject to the SEC rule, says S&P Global.

The proposal launches a 60-day comment period before any final action is taken, possibly later this year. Larger firms would have to include the Scope 1 and 2 climate risks and GHG emissions beginning in fiscal 2023, while others would have an additional year. The Scope 3 reporting for supplier and customer emissions would not be mandated until fiscal 2025, with some firms exempt from certain requirements based on size, and shielded from liablity, according to the proposal..


‘Consistent, Comparable Information’

SEC Chair Gary Gensler said the proposal is in response to investor demand for “consistent, comparable information” on climate-related risks that may affect a company's financial performance. Commissioner Allison Lee termed it "a watershed moment for investors and financial markets," noting that there is likely to be a longer phase-in of Scope 3 rules in the final proposal.

The proposed rule was approved by the Democrat-led SEC commissioners by a 3 to 1 vote. The dissenter, Republican Commissioner Hester Peirce, said the proposal “will not bring consistency, comparability, and reliability to company climate disclosures,” adding that “we cannot make such fundamental changes to our disclosure regime without harming investors, the economy and this agency.”  She said the SEC may be exceeding its statutory authority.

Even so, environmental advocacy groups strongly supported the proposal. In a statement, the Union of Concerned Scientists termed it “an important step toward recognizing that rising heat-trapping emissions and rapidly worsening climate impacts pose a significant risk to our financial and economic system.”

The group said that “accounting for those risks can help businesses and shareholders to proactively safeguard their investments,” adding that standardized disclosure “will also help businesses meet the demands of international capital markets.”

Associated General Contractors Vice President Brian Turmail told ENR that while the group “still is reviewing the 510-page proposal, if they’re seriously contemplating mandating Scope 3 for all publicly traded companies, that will create significant, time consuming and cost-prohibitive obstacles for the industry.”

According to Turmail, “any firm working on a project for a public company has to develop a system for tracking and disclosing their emissions.”

He added that “the few publicly traded construction firms will have to account for the emissions of any project they work on [such as a building, pipeline or power plant]. It's also incredibly redundant, as Scope 3 emissions are someone else's Scope 1 or 2 emissions.”



Andrew Wittmann, lead construction and industrial sector analyst for Baird Equity, said that while the rule “appears likely to be enacted, lawsuits also appear to be lining up to counteract it,” but he also noted that “there has been little-to-no [SEC] discussion of enforcement of these rules either. It seems there is a decent amount of scrutiny that this needs to undergo before it becomes an actionable regulation.” Some observers say the final rule could be years off from being enacted.
Wittmann noted that Scope 1 and 2 emissions reporting for most AEC firms could be less difficult than for other business sectors, but he cautioned that “disclosure of Scope 3 emissions for companies that design energy or oil and gas infrastructure could be an issue.”  

"The most difficult part of this ... relates to compiling this information from teaming partners and vendors," says Gerald Salontai, CEO of private equity-owned design firm Verdantas. "That is a task and ultimately will put higher demands on those that want to work for the publics."

While not required for his firm. "we are beginning to build our own program," he says. "There have been cases where clients ask for this—because they have to comply in some cases—and we should demonstrate we are setting a good example."

Salontai notes "a large opportunity for consulting firms engaged in the environment, including civil infrastructure, to help clients, publics in particular, to  set up programs, monitoring, data collection, training, etc."

Investors also are seeking "firms that have ESG programs and goals," he points out. "That way they can demonstrate they have a portfolio that is committed to climate change initiatives."