Recent developments in air management regulations within the United States have brought attention to air quality management and greenhouse gas emissions reporting. The Securities and Exchange Commission (SEC) and the state of California have introduced groundbreaking rules that are meant to reshape how companies approach air pollution and climate-related disclosures.
In this blog, we will review:
- The SEC Climate Disclosure Rule
- California’s Climate Disclosure Laws
- How these regulations will impact air management
- Challenges and Controversies of these regulations
SEC Climate Disclosure Rule
In March 2024, the SEC finalized its climate disclosure rule, marking a significant step towards standardizing climate-related financial risk reporting for public companies. This rule requires large public companies to disclose their Scope 1 and Scope 2 greenhouse gas emissions, subject to a materiality threshold. While the final rule was weakened compared to the initial proposal, notably removing mandatory Scope 3 emissions reporting, it still represents a major shift in corporate environmental transparency.
The SEC rule is intended to provide investors with consistent and comparable information about companies’ climate-related risks and strategies. This includes:
- Disclosure of material climate-related risks
- Reporting on climate risk management processes
- Information on how climate risks affect business strategy and outlook
California’s Climate Disclosure Laws
California, often at the forefront for environmental regulation, passed its own climate disclosure laws in October 2023. These laws, SB 253 and SB 261, go beyond the SEC requirements in several ways:
- They apply to both public and private companies doing business in California
- They mandate disclosure of Scope 1, 2, and 3 emissions
- They require reporting on climate-related financial risks
California’s approach is more comprehensive and stringent than the SEC’s, reflecting the state’s commitment to addressing climate change and air quality issues.
Impact on Air Management
These regulations are likely to generate a lasting impact on air quality management. Companies will need to closely monitor and report their emissions, leading to greater awareness of their environmental impact and increased transparency. The public disclosure of emissions data may incentivize companies to implement more aggressive emission reduction strategies to improve their environmental profile. With California requiring Scope 3 emissions reporting, companies will need to examine their entire supply chain’s environmental impact, potentially leading to more sustainable practices throughout industries. Furthermore, investors may use the disclosed information to make more environmentally conscious investment decisions, potentially driving capital towards cleaner technologies and practices. These combined effects are likely to create a ripple effect across industries, fostering a more comprehensive approach to air quality management and environmental stewardship.
Challenges and Controversies
The implementation of these regulations faces several significant challenges. One of the primary concerns is the potential for preemption, as questions have been raised about whether the SEC rule might supersede California’s more stringent requirements. This legal uncertainty could lead to confusion and inconsistency in reporting standards across different jurisdictions. Another major hurdle is the reporting burden, particularly for smaller companies that may struggle with the complexities of emissions calculation and reporting. The technical expertise and resources required to accurately measure and disclose emissions data could prove too challenging for many businesses. Additionally, the SEC’s inclusion of a materiality qualifier for emissions reporting has drawn criticism. This threshold has been viewed as a potential loophole that could allow companies to underreport their environmental impact, potentially undermining the effectiveness of the disclosure requirements in providing a comprehensive picture of corporate environmental performance.
Final Thoughts
The SEC and California regulations represent a significant shift in how air quality and climate-related risks are managed and reported in the United States. While challenges remain, these rules are likely to drive increased attention to air management practices across industries. As companies adapt to these new requirements, we may see accelerated progress towards cleaner air and reduced greenhouse gas emissions.
Want to learn more about how Cority’s Environmental and Sustainability Cloud can help organizations manage evolving air management regulations? Chat with an expert today!
Sources
“EPA Proposes Approval of Groundbreaking Rule to Reduce Southern California Air Pollution.” EPA, 12 Oct. 2023, www.epa.gov/newsreleases/epa-proposes-approval-groundbreaking-rule-reduce-southern-california-air-pollution.
“SEC Reporting Impacts on Business Aviation.” 4AIR, 10 Oct. 2023, www.4air.aero/whitepapers/sec-reporting-impacts-on-business-aviation.
“The SEC’s Final Climate Disclosure Rule: Interrogating Preemption and Coherence with Other Domestic Regimes.” Columbia Law School, 29 Mar. 2024, blogs.law.columbia.edu/climatechange/2024/03/29/the-secs-final-climate-disclosure-rule-interrogating-preemption-and-coherence-with-other-domestic-regimes/.
“The Progress and Shortcomings of the SEC’s Climate Risk Disclosure Rule.” Sierra Club, 12 Apr. 2024, www.sierraclub.org/articles/2024/04/progress-and-shortcomings-sec-s-climate-risk-disclosure-rule.
“4AIR Whitepaper: SEC Reporting Impacts on Business Aviation.” 4AIR, 10 Oct. 2023, www.4air.aero/whitepapers/sec-reporting-impacts-on-business-aviation. Accessed 2 Oct. 2024.
“California Ambient Air Quality Standards (CAAQS).” California Air Resources Board, ww2.arb.ca.gov/resources/california-ambient-air-quality-standards. Accessed 2 Oct. 2024.
“Clean Air Act Permitting in California | US EPA.” United States Environmental Protection Agency, 30 Apr. 2024, www.epa.gov/caa-permitting/clean-air-act-permitting-california. Accessed 2 Oct. 2024.
“Laws and Regulations | California Air Resources Board.” California Air Resources Board, ww2.arb.ca.gov/resources/documents/laws-and-regulations. Accessed 2 Oct. 2024.
“Regulations – AQMD.” South Coast Air Quality Management District, www.aqmd.gov/home/rules-compliance/regulations. Accessed 2 Oct. 2024.
“The Clean Air Act (CAA).” Bureau of Ocean Energy Management, www.boem.gov/air-quality-act-1967-or-clean-air-act-caa. Accessed 2 Oct. 2024.
