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Decoding the New GHG Regulations

5/01/23

In recent weeks, the federal government has come out with a variety of new rules in an effort to reduce the impact the buildings have on the climate. The Department of Energy (DOE) laid out building-sector decarbonization plans, created new lightbulb standards, and finalized new appliance energy efficiency rules in the month of April alone.

But one of the most significant and widespread new rules comes from the Securities and Exchange Commission (SEC), who recently announced updates to how businesses should disclose their greenhouse gas (GHG) emissions and climate impact. States like California are also adopting their own regulations around GHG emissions, leaving many organizations confused and wondering how the rules impact their operations. Take a look at the revisions below to see how they could affect many companies nationwide.

SEC No Longer Requiring Scope 3 Disclosure

According to the SEC’s new regulations, large publicly traded companies are compelled to provide detailed information about their GHG emissions and climate risks. This requirement is significant because it provides investors with a clearer understanding of the environmental impact of their investments, which can influence investment decisions and corporate strategies.

As of now, the SEC is not requiring companies to report some indirect emissions, known as Scope 3. These are emissions not from a company or its operations, but those that happen along its supply chain or result from a consumer using the product. Large companies will, however, report scope 1 and scope 2 emissions if they believe they are “material” — in other words, significant. Smaller publicly traded companies don’t have to report emissions at all.

The SEC estimates that roughly 2,800 U.S. companies and 540 foreign companies with business in the U.S. will have to disclose climate information. The largest companies will have to start reporting emissions for fiscal year 2026.

California Is Requiring Scope 3 Reporting

Unlike the SEC’s exclusion of Scope 3 emissions, California included it in its new regulations SB 253: The Climate Corporate Data Accountability Act and SB 261: The Climate-Related Financial Risk Act. And while the SEC’s rule only applies to publicly traded companies, California’s will apply to all businesses — public or private — that operate in the state.

This means that public and private entities with annual revenues over $1 billion must start disclosing their scope 1 and scope 2 emissions to a reporting organization in 2026 and their scope 3 emissions in 2027. Companies with annual revenues over $500 million will be required to post their climate-related financial risks on their websites in 2026 with a description of how they plan to reduce or adapt to those risks.

While the SEC’s ruling is meant to both enhance and standardize climate-related disclosures at a national level, organizations also need to be aware of state and local regulations going forward in order to comply with the reporting requirements.