Michelle Foster
March 30, 2022
The SEC Ups the Ante: Greenwashing Riskier Than Ever
New U.S. Securities and Exchange Commission (SEC) rules will require public companies to report on the climate impacts of their business. The SEC proposal requires companies to disclose climate-related risks – such as how climate might impact their business, operations, or financial condition – in their statements and corporate reports. Companies will also be required to disclose their greenhouse gas emissions, per the new rules.
Why is the SEC mandating company disclosure of climate data? It’s pretty simple. Investors are asking for climate change disclosure standards because climate-related risks are an increasingly important consideration for investment decisions. With better, more detailed information, better decisions can be made. The cornerstone of the SEC’s mission is to ensure that companies offering securities for sale to the public tell the truth about their business, the securities they are selling, and the risks involved in investing in those securities.
Many companies already disclose climate-risk information, especially those that do business in European markets where such data has been required for years. But the United States had lagged in mandating climate disclosure. Having more comparable and consistent data across all public companies can level the playing field and allow investors to accomplish two specific objectives:
- First, some investors want to avoid companies that are significantly at risk from climate change. While those risks are easy to identify for some companies, for others, the risks are less obvious. The SEC rule can help investors see where hidden vulnerabilities exist.
- Second, an increasing number of investors have set ESG goals for their funds – seeking to invest in companies that have measurable commitments to environmental, social, and governance goals. ESG investing has an outpouring of voluntary disclosure. The Wall Street Journal reported that about 90 percent of companies in the S&P 500 publish voluntary reports disclosing statistics on things such as carbon emissions and how much renewable energy they use. The proposed SEC rule can help ensure ESG claims by any individual company are credible and comparable across diverse companies.
The SEC is accepting comments on the proposed rule until May 20th.
Investors want this data, and they are already making climate-based and ESG-driven decisions. While no one knows what the final rule on climate change disclosure will require, one thing is clear: Greenwashing is becoming riskier. Like the FTC 2012 Green Guides, the SEC is taking aim at greenwashing. But while an FTC enforcement action against false environmental claims is bad for any company, an SEC enforcement action is certainly worse. The bottom line is that companies will not want to run afoul of the SEC by making unfounded climate claims or failing to disclose them.
The SEC rule requires climate claims to be audited as part of the company’s financial statement, a third-party review akin to an NGBS Green certification. A financial statement audit adds credibility to the reported financial position and performance of a business. Similarly, NGBS Green certification adds credibility to the green and sustainability claims for a building. We mitigate risks through verification.
For our NGBS Green certification clients, the proposed SEC rule provides additional validation of your decision to design, build, and own high-performing real property assets, and seek a third-party certification of their conformance to back-up your environmental claims. The SEC rule aligns closely with the value of third-party certification. The NGBS Green mark signifies to investors, consumers, government staff, and other stakeholders that a building’s environmental claims are independently verified.
If you’re not already having your homes/buildings NGBS Green Certified, now may be the right time to for you to start. Find out more – visit www.HomeInnovation.com/Green.
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