In 2010, the Securities and Exchange Commission (SEC) recognized there has been significant investor demand for information about how climate conditions may impact their investments (i.e.) more people were throwing investor dollars behind green companies.

In 2019, more than 630 investors collectively, managing more than $37 trillion, signed the Global Investor Statement to Governments on Climate Change, urging governments to require climate-related financial reporting. By 2021, this dollar amount grew to $52 trillion in assets under management, in the aggregate, in the United States. (Note: there were many versions of initiatives like these including the “Climate Reporting Platform.”)

Former Mayor Michael R. Bloomberg is Chair of the Task Force on Climate-related Financial Disclosures (TCFD), which is important because the proposed rules cite that the initiatives advocating for mandatory climate risk disclosure requirements aligned with the 2017 recommendations of the TCFD. In addition, studies done by CDP, KPMG, TCFD, and Ernst & Young have reinforced observations from their review of filings that there is significant variation across companies and industries with regard to the content of current climate disclosures (i.e. “greenwashing”). Arguable even more money will be poured into the pockets of consultants as companies scramble to find greenhouse gas (GHG or GhG) emissions data and report to the SEC with reasonable assurance.

Greenwashing is when companies are less than truthful about their environmental, social and governance (ESG) criteria. In 2022, “greenwashing” has become popularized as a concern among investors, which will commonly move the Securities and Exchange Commission to act regardless of the issue (see meme stocks, see crypto, etc.). 

On May 9, 2022, the SEC released The Enhancement and Standardization of Climate-Related Disclosure for Investors, which AEM found via the Federal Register (the official journal of the federal government of the United States). The proposed SEC rules are really amendments to the Securities Act of 1933 & Exchange Act of 1934. They require publicly traded companies to disclose GHG emissions (scope 1, 2, & 3) at different times, in different ways, depending on the size of the company. Ultimately this is concerning, because they require reporting to be done under Regulation S-X. S-X documents are subject to financial audits and can come with serious consequences for fraudulent reporting, opening members up to an increased amount of regulatory risk.

Moreover, the SEC released S7-17-22 for comment on May 25, 2022. This is a very similar rulemaking to what was seen in the proposed climate rule; however, now they are talking logistics. This includes how disclosure will happen based on the type of account. Account types include "Unit Investment Trusts," "Management Investment Companies," and "Business Development Companies (BDCs)." The latest release highlights the difference between the "fund" and the "financial advisor," and regulates "financial advisor" ESG statements. In other words, they are now proposing to regulate "ESG investment strategies."

These two rules affect manufacturers large and small because of the way the supply chain works. Large companies will need to develop new risk management functions that consider increased legislative, regulatory and operational risks associate with reporting inaccurate emissions data, on the financial statements, as soon as next year. Small companies will need to develop enterprise compliance capable of monitoring and reporting emissions data to larger companies or risk losing business.

AEM has been able to collaborate with experts from the New York Stock Exchange (NYSE), Small Business Administration (SBA), the SEC, other industry associations, and member companies on a response to the proposed rule. Comments have been submitted to the SEC in response to the rulemaking process, and AEM anticipates the SEC may adopt changes which make sense for the industry:

  • Create an exemption for scope 3 reporting. AEM highlighted the manufacturing supply chain and third-party risk factors associated with upstream and downstream supply chain reporting.
  • Strengthening “safe harbors” and phase-in periods for smaller reporting companies (SRCs), Non-Accelerated, and non-publicly traded companies (which this rule could indirectly impact). AEM recommended adding to the already existing safe harbors to help protect members without sufficient enterprise compliance and give them more time to work toward full material disclosure over the next decade.
  • Regulation S-X forms are audited, and penalties for fraudulent reporting could lead to a significant increase in risk. This should be considered the meat and potatoes of this rule. The SEC’s goal is to push companies toward keeping accurate metrics and reporting timely data. AEM recommended highlighting the “good faith” language already in the proposed rule and requesting the reporting instead be tied to a “no assurance disclosure” for a five-year period. This will allow companies to adjust to new reporting, without fear of litigation brought on by inaccurate reporting. 

For more information on the rulemaking process or other AEM sustainability/ risk management resources, contact AEM Regulatory Affairs Manager Johnathan Josephs at

For more AEM news and updates, subscribe to the AEM Industry Advisor. 

For more AEM news and updates, subscribe to the AEM Industry Advisor.