For decades, economists have been trying to understand how climate change will disrupt the global economy. Last year, the Swiss Re Institute warned that climate change could wipe up to 18 percent of GDP off of the worldwide economy by 2050 if global temperatures rise by 3.2° Celsius. The impact of climate change for investors on their future portfolios is nothing to balk at, which might be why the latest proposal from the U.S. Securities and Exchange Commission is causing a buzz.

The SEC announced a new proposal last Monday that would require any company that seeks to raise capital from U.S. investors to release a set of climate-related financial disclosures. As detailed in a press release, the proposed rule changes would require companies to include information about climate-related risks (such as greenhouse gas emissions) that could feasibly impact their business, results of operations, or financial standing in their registration statements and quarterly reports. Businesses would also be required to disclose certain climate-related metrics along with their financial statements. 

Forcing businesses to explain their own greenhouse gas emissions, their climate-related goals, and how climate risks influence their businesses is certainly a burden on companies. The question is will it change the way the investment community thinks about a companies’ financial outlook? Well, if climate change is, as SEC Chairman Gary Gensler puts it, “material information for investors to make informed decisions,” the answer is yes. 

The proposed changes aren’t appearing from out of the blue.

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