Investment specialist Cardano was one of the respondents, telling the SEC that it found it increasingly hard to invest in US-domiciled funds, where sustainability-related disclosures, and climate change disclosures in particular, fell behind those of UK and European standards.

Today, Will Martindale, group head of sustainability at Cardano, told IPE that the SEC’s new rule to incorporate TCFD reporting into financial statements was a milestone.

“Mandatory Scope 1 and 2 disclosures, and for the largest companies, material Scope 3 disclosures, clarify regulatory expectations, improve information disclosure through the intermediation chain, and will lead to more efficient allocation of investors’ capital,” he said.

“This in turn should affect capital flows. Companies that measure and manage their climate change-related risks and opportunities are better placed to respond to, and to support, the sustainability transition.”

However, Martindale warned that the SEC’s move was “a tentative one, and remains subject to political bargaining”.

“Last year, we called the SEC to go further and faster on climate change disclosures. Our message is still unchanged.”

The disclosures required under the proposal would include:

• information about climate-related risks and their actual or likely material impacts on a company’s business, strategy, and outlook;
• certain climate-related financial statement metrics and related disclosures in a note to audited financial statements;
• information about climate-related targets and goals, and transition plan, if any; and
• information about an internal carbon price, if one is used.

As regards greenhouse gas emission disclosures, the requirement would be for information about Scope 1 and Scope 2 emissions to be disclosed. An entity would be required to disclose greenhouse gas emissions from upstream and downstream activities in its value chain (Scope 3) if material or if it had set an emissions target or goal that included Scope 3 emissions.

The proposed rule was reportedly passed by the SEC with a 3-1 vote led by chair Gary Gensler, with Hester Peirce, the sole Republican among the four Commissioners, voting against. The proposal will be subject to a 60-day comment period.

According to the SEC, if the rule is finalised by the end of the year, a large issuer would need to comply for its fiscal year 2023 and file with the SEC in 2024.