There is a growing awareness that climate change threatens the stability of financial markets and poses systemic risks to the U.S. economy. Currently, however, the country’s hundreds of publicly traded companies are not required to disclose the various ways in which the consequences of global warming could threaten their profits. Companies that address climate risk in their annual reports and other public filings choose to do so voluntarily. As a result, many policymakers argue that climate-related disclosures are unreliable, inconsistent and incomparable across companies, leaving investors blind to the real risks on company books.

These policymakers are starting to make progress. On Monday, the U.S. Securities and Exchange Commission (SEC) took the first step toward requiring companies to publicly disclose various climate risks. The long-awaited rule requires companies to explain how climate risks affect their revenue and profitability in public filings with the Securities and Exchange Commission required by law. The independent federal agency designed to protect investors by regulating stock offerings by public companies also proposes requiring companies to disclose any climate-related goals they set (such as net-zero targets), how climate risks may affect items in financial reporting, and Whether they are taking action to minimise the impact of climate change on their activities.

Most importantly, the proposed rules require disclosure of carbon emissions directly from a company’s operations, as well as emissions from electricity and other forms of energy production on which it depends, known as Scope 1 and 2 emissions, respectively. The rule also requires disclosure of more indirect Scope 3 emissions, a category that includes emissions from the use of products sold by companies. If the rule is adopted, businesses have one to three years to comply with the rule.

“Companies and investors alike will benefit from the clear rules of the road set forth in this press release,” said SEC Chairman Gary Gensler. “I believe that when the need for consistent and comparable information that could affect financial performance reaches this level, The SEC has a role to play. So today’s proposal is driven by investor and issuer demand.”

The US is catching up with climate-related financial rules. The EU already requires similar disclosures and is strengthening its climate risk rules. Over the past few years, there has been a growing recognition that climate-induced disasters are wreaking havoc on businesses. Electricity provider PG&E is a prominent example of a public company being forced into bankruptcy due to climate change-induced wildfires. Because of such risks, investors and shareholders have been lobbying corporate boards for more disclosure — even waging internal revolts when their efforts meet resistance. The United Nations Principles for Responsible Investment, an organization that promotes environmentally friendly practices among investors, has more than 4,000 signatories.

The SEC’s mission is to protect investors by ensuring that public companies provide them with timely and accurate information about their business practices. The agency operates more independently than other federal departments that fall directly under the president’s purview, and is tasked with maintaining “fair, orderly and efficient markets” — and environmentalists argue that climate-related risks are entirely within its control.

However, those who oppose the rule say the agency lacks the power to issue climate change rules, a topic they claim should be addressed by environmental agencies alone. Opponents include the American Petroleum Institute, the main lobbying group for fossil fuel interests, which has raised concerns about the practical problems that standardized disclosures could raise, while state officials such as the West Virginia attorney general have claimed the rule would require “statements” in the push. political issues on the political agenda. “A lawsuit challenging the rules is almost certain.

Companies have also been pushing the SEC to exclude Scope 3 emissions from the rules. Because Scope 3 emissions come from the entire supply chain, including sourcing commodities, smaller supplier companies and customers, they are generally not under the company’s direct control. The proposed rules require disclosure of emissions if the company already has an explicit emissions reduction target that includes Scope 3, or if such emissions could be considered “significant” from an investor’s perspective – in other words, if a typical shareholder may would consider such emissions to be relevant to their financial interests in the company. Smaller companies are exempt from this requirement.

Alyssa Rade, chief sustainability officer at Sustain.Life, a technology company that helps companies track and report emissions, said the new rules could put positive pressure on companies across the supply chain to disclose emissions.

“While smaller supplier companies may not have calculated their carbon footprints, there is growing pressure from the largest customers to take action,” she said in an email. “This is exactly the market pressure that US regulators are pursuing by including Scope 3 emissions accounting in the new disclosure ruling.”

The SEC is seeking comment on the proposed rule for the next 60 days. After the comment period closes, the agency is expected to consider and possibly revise the rule in response.