In just the last half year, climate change has supercharged some of the costliest disasters the U.S. has ever experienced. Hurricanes Helene and Milton and the Los Angeles wildfires caused hundreds of billions of dollars of damage that will take years to recover from and leave deep financial scars for families, businesses, and governments.
Businesses are being forced to reckon with these growing climate risks and simultaneously develop strategies to remain competitive in a lower carbon economy. Physical assets and supply chains face immediate threat from more frequent and severe climate disasters. The world’s largest companies report almost $1 trillion at risk from climate impacts and $250 billion at risk due to write-offs of stranded fossil fuel assets.
It has never been clearer that investors of all types need access to high-quality information to understand the risks that climate change poses to their portfolios and to leverage their investments to limit global warming and avert innumerable harms to people and the planet.
In 2024, the SEC finalized a rule that would require public companies to disclose climate-related financial risk information, including physical and transition risks, greenhouse gas (GHG) emissions, climate transition plans, and impacts on financial statements. Notably, and despite near unanimous investor support, the rule omitted Scope 3 GHG emissions, the largest scope for most companies.
A flurry of lawsuits, for and against Scope 3 disclosure, quickly followed. Three weeks after President Trump’s inauguration, his new SEC Chair requested the courts halt litigation. Savvy observers acknowledged that the likely forthcoming rollback is “an early gift to Trump’s oil and gas supporters.”
Though the SEC is likely to fully repeal or otherwise jettison its climate disclosure rule, California is moving forward with its own climate disclosure regulations that will capture large public and private companies, and the European Union will continue to require climate disclosures under the Corporate Sustainability Reporting Directive.
Despite a degree of regulatory uncertainty, enhanced corporate climate disclosure is still the clear direction forward. A recent survey of over a thousand executives at major companies found that 85% will stick with their current plans to report GHG emissions even if regulatory requirements change, and nearly all plan to integrate sustainability into financial reporting moving forward.
Yet, to avert further regulatory backsliding and to curb the rampant corporate greenwashing that has long plagued climate reporting, it is critical that:
Investors engage with California legislators, Governor Newsom, and the California Air Resources Board to indicate support for robust climate disclosure rules aligned with global standards like the International Sustainability Standards Board framework;
Investors support similar climate disclosure bills in New York, New Jersey, Colorado, and Illinois to bolster corporate reporting; and
Investors with a footprint in Europe should advocate for minimal cuts and delays to the European rules for climate disclosure, corporate due diligence, and sustainable investing.
Finally, investors should continue using shareholder engagement to press businesses strongly for robust disclosure and more climate-friendly and climate-resilient operations. To get a full accounting for climate risks and impacts, companies must disclose:
Physical risks (e.g., to assets and supply chains) and transition risks;
Environmental and racial justice impacts on communities;
Scopes 1, 2, and 3 GHG emissions, including financed emissions and emissions from all portfolio companies, without offsetting using carbon credits;
Net zero transition plans with interim targets, just transition strategies for affected workers, and annual progress reports;
Annual capital expenditures applied toward climate resilience and decarbonization; and
Significant climate-related impacts on financial statements.
Investors can still play a vital role in ensuring corporate climate disclosure despite a SEC retreat.
Alex Martin
Policy Director, Climate Finance, Americans for Financial Reform Education Fund