The SEC’s new climate rules mean a gold rush for carbon consultants

An emerging group of carbon consulting startups could see a major payday as companies are forced to measure their emissions. …

Public companies in the US will soon be required to publish information about their carbon footprint and exposure to different forms of climate change risk.

New rules (pdf) proposed by the Securities and Exchange Commission (SEC) on March 21 are primarily meant as a resource for investors looking to compare companies’ climate plans. But the proposal would also mean a big payday for auditing firms, which will be in high demand to fact-check these disclosures lest companies run afoul of fraud laws. Climate disclosures are a unique challenge, in that they require far more data about a company’s operations and potential vulnerabilities than traditional financial disclosures.

The SEC rules are also structured so that some of that work need not be done by traditional certified public accounting firms. That opens a competitive edge for carbon consultants, an emerging class of startups that specialize in tallying corporate emissions, said Kristina Wyatt, a former SEC lawyer who helped develop the rules and is now deputy general counsel for Persefoni, a carbon consulting firm.

“I think the demand for our product is really going to explode, to be honest,” Wyatt said.

What companies will need to disclose

Over the next few years, there are two types of data companies may need to disclose. The first is the carbon footprint of the company’s operations, known as scope1; the second is the energy the company uses, known as scope 2.

Large companies may also need to disclose scope 3 emissions, which come from a company’s supply chain and customers; for big emitters like fossil fuel companies, scope 3 accounts for the vast majority of emissions. Companies are excused from disclosing scope 3 emissions if they are not “material” to investors, a distinction that could end up being litigated in court if companies and shareholders disagree. The rules do protect against lawsuits that challenge the accuracy of scope 3 data, since that data is much more difficult to accurately assess than scopes 1 and 2, which are directly under a company’s purview.

Companies will also need to disclose how their future value might be impacted by either physical climate impacts or reduced demand for fossil fuels.

Carbon consultants could be acquired by big accounting firms

Whatever a company is required to disclose, all of that information will need to be checked by a third party. “It can’t be one guy sitting in an office making it up as he goes along with no oversight from management,” said Alma Agnotti, another former SEC lawyer and now a regulations expert at global consulting firm Guidehouse.

But the Big Four accounting firms, already under fire for missing red flags in traditional financial audits of companies like WeWork that later collapsed, may not be the best choice for the job. In November 2021, a coalition of major investors warned the Big Four that they weren’t adequately prepared for climate audits. And accounting firms are already in fierce competition with financial institutions for a limited pool of sustainability-trained accountants.

That’s where carbon consultants come in. Or, where they might find themselves courted for an acquisition by one of the Big Four, Agnotti said: “That’s a quick way to get all that expertise.”

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