SEC Disclosures: What they could mean for carbon credits and decarbonization

In March 2024, the US Securities and Exchange Commission (SEC) issued a landmark regulation mandating climate-related disclosures for public companies. As the first federal climate-related disclosure rule in the country, this regulation not only signifies a pivotal moment in corporate accountability but also sets the stage for significant changes in how businesses address climate risks and emissions. With the looming deadlines for compliance, companies are evaluating strategies to meet regulatory requirements while advancing their decarbonization goals. 

The Impact of SEC Disclosures Rule

The SEC disclosures rule will, for the first time, require all listed US companies to disclose information about their emissions and use of credits towards their climate goals. This heightened regulatory scrutiny underscores the importance of transparent reporting, but it may worry some credit buyers and increase fears around reputational risks. But corporations should not fear– they can follow the already-available guidance and act confidently. 

Decarbonization

According to the Science Based Targets initiative (SBTi), companies embracing the Net-Zero Standard are required to establish both short- and long-term science-based targets across all operational scopes. Central to this standard is the imperative for companies to achieve significant decarbonization, aiming for a reduction of 90-95% before 2050. At that point, a company must neutralize any limited residual emissions that are not yet possible to cut using permanent carbon removals. Ninety percent or more decarbonization by 2050 is the only route to science-based net zero.

Purchasing Carbon Credits

As the SEC intensifies the spotlight on corporate climate actions, companies are compelled to take more decisive steps toward decarbonization and increased urgency for organizations to address their emissions. However, many firms may not be able to achieve significant reductions immediately. Consequently, these companies may look to purchasing carbon credits as an immediate action to support their sustainability journey. 

If so, they’ll need to navigate this landscape prudently. In the short term, corporations should consider purchasing carbon credits in alignment with the Voluntary Carbon Market Integrity (VCMI) guidance. 

Additionally, initiatives such as the ICVCM seek to establish and uphold minimum threshold standards for credit quality. By adhering to such guidance, corporations can confidently invest in carbon credits, ensuring their contributions are directed towards effective climate solutions and, as a result, demonstrate their commitment to high-quality investments in line with SEC guidance.

Partnering with outside firms for guidance, like Sylvera, offers corporations the assurance of conducting thorough due diligence, facilitating investments in trusted, high-quality carbon credits. 

Buying Credits vs. Decarbonization

With SEC disclosures looming, companies are compelled to ensure transparency in their environmental strategies. The good news is that contrary to common belief, purchasing carbon credits does not detract from decarbonization efforts; rather, it emphasizes them. We analysed data from leading companies across industries, and it revealed that those engaging in credit purchases are concurrently reducing their Scope 1 and 2 emissions at a rate exceeding the industry average. Instead of using credits as a loophole to evade emissions reduction, companies that are taking emissions reduction seriously, take all forms of climate action seriously.

Regulations related to climate targets are becoming more prescriptive. With time, there will be heightened scrutiny, meaning the companies taking proactive steps, in accordance with best practices, will carry less risk than those taking a passive stance.

As companies navigate the evolving landscape of climate regulation, credit purchases and decarbonization efforts will continue to become more intertwined and gain more spotlight.  Embracing transparency, accountability, and a commitment to quality can help businesses effectively manage climate-related risks, bolster their competitiveness, and contribute meaningfully to a net-zero future.

Download the full report for comprehensive insights on how carbon credit purchases can complement decarbonization efforts.