The U.S. Securities and Exchange Commission recently proposed a new federal rule requiring all publicly traded companies to disclose climate risks and carbon emissions. This rule holds the potential to make huge progress by forcing banks to disclose which carbon-intensive projects they are financing. If passed, the rule will give bank investors greater transparency on the global climate emissions generated by their investment; once disclosed, banks will work to reduce their carbon exposure, which means new products and new terms to finance low carbon projects — globally. People should understand the transformative effects of disclosing the carbon impacts of bank financing, if only the SEC rule can pass.
The U.S. Securities and Exchange Commission recently proposed a new federal rule requiring all publicly traded companies to disclose climate risks and carbon emissions. It’s meant to provide greater transparency to guide investor decisions. The proposed regulation is not a surprise in itself — it was broadly signaled and much anticipated. But whether the rulemaking is finalized into regulation or not, there’s a transformative impact that few realize. By covering U.S. publicly traded banks, this rule would, in one giant step, cover climate emissions across a major swath of the global economy.
How Does It Work?
The proposed regulation would require public companies to report their climate emissions, which come in three standardized reporting forms. Scope 1 emissions are those generated onsite. Scope 2 emissions are those from energy that is purchased. Scope 3 emissions are generated by a company’s supply chain and products in service. Some companies already disclose Scopes 1 and 2. These are the easiest to report using energy supply and utility bills. Scope 3 is hard. It requires an analysis of all greenhouse gas impacts from a company’s supply inputs as well as the carbon implications for the company’s products used over their lifetime. Many companies are pointing to the burden the regulation could create. At the same time, new data mining and modeling methods are being developed to help calculate Scope 3 emissions.
Following the Money
Consider the proposed rule through the lens of a bank. Scope 1 for a bank could be the boiler in the basement burning natural gas to provide heat for the building. Scope 2 could be the electricity purchased from the local utility. In addition to the supply chain, Scope 3 would be the carbon emissions that result from the bank’s loans and investments, which are the products of a bank. These range from real estate to fossil fuels and other carbon intensive products. Let that sink in.
If U.S. public banks are required to disclose the carbon emissions of loans, they in essence cover the global economy since they loan to public …….
Source: https://hbr.org/2022/05/what-if-banks-had-to-disclose-the-climate-impact-of-their-investments