Soon, we may know more about the companies we invest in. The Securities and Exchange Commission (SEC) said for the first time that public companies must report the climate-related impact of their businesses to the federal government and their shareholders.

Approved by a 3-to-1 vote, the proposed rule moves the SEC one step closer to enacting the sweeping climate disclosure rule. The goal is to give investors a better idea of how climate-related risks might impact companies.

The Situation: In a press release, S.E.C. Chair Gary Gensler said, “Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.”

  • Many companies have been releasing information about their greenhouse gas emissions. The SEC estimates that a third of the 7,000 corporate annual reports it reviewed in 2019 and 2020 included some climate impact disclosures.
  • This new rule will bring order to the process, requiring companies to provide information about climate-related risks in their annual reports and stock registration statements.

Gensler said, “[This] proposal would help issuers more efficiently and effectively disclose these risks and meet investor demand, as many issuers already seek to do. Companies and investors alike would benefit from the clear rules of the road proposed in this release. I believe the SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance.”

More Context: With this new rule, companies would be required to conduct three levels of analysis. In the first two levels, companies would have to annually disclose the direct impact of their operations on climate change like the products they make and any indirect effects on the environment that come from using electricity, water or trucks. More extensive and only required of the largest companies, the third level involves assessing the carbon footprint of partners, business travel and any assets a company leases.

Promo Reacts: In November, Quincy, Massachusetts-based distributor Stran & Company, Inc.  became a publicly traded company; it trades on the Nasdaq under the symbol “STRN.”President and CEO Andy Shape, says, “Although we don’t see this SEC regulation as any risk to our business, we have consistently been at the forefront of the industry to make sure we are mitigating both our carbon footprint and that of our partners. 

“I do think our self-imposed social and economic responsibilities to make the world a better place for future generations outweighs any regulatory requirements from the SEC, but we do recognize the value they are trying to add by imposing that on other organizations who may not feel the same way.

“In addition, more and more investors are evaluating a company’s ESG (Environmental, Socialand Governance) initiatives as part of their analysis, so we want to be aware of that now and well into the future.”