. The SEC unsurprisingly wants businesses to disclose that kind of risk. But there’s a second kind of risk that stems from the very act of emitting carbon. In its purest form, that sort of business risk might appear as a tax on carbon emissions. But as the tide shifts toward addressing climate change, there are all sorts of other factors, fromand restrictions on emissions to changes in technology and customer preferences that will endanger oil-burning businesses.
Requiring companies to disclose transition risks is a long time coming, says Alexandra Thornton, who leads tax policy at the Center for American Progress, a liberal think tank. Many companies have already started considering physical climate risks—because, duh, they’re a real and present danger to their bottom lines, causingevery year. Many also report their emissions, keeping tabs on progress toward publicly stated targets.
. It divides emissions into categories: So-called Scope 1 emissions include the emissions a company produces itself, while Scope 2 tallies the emissions from producing the energy it uses—perhaps released by a distant coal plant, but still integral to the business. Scope 3 covers everything else, from vastly complex supply chains to the energy demands of customers to emissions from the cars that employees drive to work.
They’re also generally the most stubborn to get rid of. Big companies can often wind down their Scope 1 and 2 emissions with relative ease—put solar panels on headquarters, maybe, or use their status as major energy buyers to transition their electricity-hungry data center from fossil fuels to renewables. It’s not so hard if you have a lot of money and influence.