SEC adopts climate disclosure rules, giving carbon accounting startups firm footing

The SEC voted on Wednesday to require public companies to report a portion of their greenhouse gas emissions and their exposure to risks from climate change.

The rules will require certain companies to report their Scope 1 and 2 emissions, those that result from direct operations and energy use, but omits Scope 3 emissions, or pollution that they generate indirectly, including throughout their supply chains or when customers use their products or services.

While the new rules do not apply to privately held companies like startups, they do create opportunities for those focused on the carbon tracking, accounting and management space. Many already exist to serve companies interested in discovering and reducing their carbon footprints, and the SEC’s new regulations could inspire more founders to jump in.

The SEC began considering climate-related disclosures in 2022, and in the process of developing the regulations, the agency received more than 24,000 comments. The proposal was met with split opinions from the publicly traded companies that fall under the regulator’s purview.

Some, like Amazon, Vanguard, Ralph Lauren and Chevron, supported Scope 3 disclosures; already, many public and private companies voluntarily track those emissions. But others, like Walmart, Fidelity, Gap, Southwest Airlines and BlackRock, were opposed, arguing in some cases that Scope 3 was still too inaccurate.

In recent years, a number of startups have turned to AI to automate and improve Scope 3 estimates. Expect that trend to continue.

In adopting the new rules, the SEC is playing catch-up with other large economies, including China and the EU, which both have greenhouse gas reporting requirements. While the new rules are significantly watered down from what was first proposed, they still represent a stake in the ground: Disclosures related to emissions and climate risk are going to become key data points for which investors can evaluate companies.