How the SEC plans to fight greenwashing

By some financial standards, climate investors are a curious lot. Many of them are willing to forego higher returns in favor of lower emissions, but even so, they represent a small pool of possible investors, so fund managers have to create products that appeal to both climate investors and conventional investors looking to maximize their returns. The result is ESG funds with higher levels of greenhouse gas emissions than funds selected on the basis of returns. 

ESG investors, however, aren’t so keen on having their investments redirected to companies contravening the goals of their investment and in response to pressure from them, not to mention the White House and Congress, the Securities and Exchange Commission is preparing to issue rules on emissions reporting

All public companies with stock held by public investors over $75 million will be required to report on Scope One, Two and Three emissions. Companies that don’t meet those thresholds will be required to report on just their Scope One and Two emissions. Scope One emissions come from the company’s own facilities and vehicles while Scope Two emissions are those from the company’s energy suppliers and Scope Three emissions include those of other suppliers and emissions produced by customers using the company’s products. The compliance is estimated to cost between $400,000 and $600,000. 

But by all accounts, the extra costs will be worth it. 

Not only will the new regulation help standardize climate impact reporting in the corporate world, it will make that reporting more transparent and accessible. This is a big deal for investors and for enforcing emissions regulations. This will help cut down on corporate greenwashing and arm investors — and consumers — with accurate information. 

The ESG investment industry definitely needs it. Last year, the sector was rocked by carbon credit scandals. An article in the journal Science found that carbon offsets failed to stop deforestation while a number of brands were accused of making misleading claims about their purchases of offsets.

Having accurate information will help investors make better decisions. It will also help provide more info on corporate climate goals and businesses’ progress towards meeting them. 
The SEC has repeatedly delayed issuing the rule, most recently in December of last year. It is now expected in the spring of this year.