The new rules proposed by the U.S. Securities and Exchange Commission for climate-related financial risk disclosures were a long time coming. U.S. regulators have trailed behind counterparts elsewhere in the world, from New Zealand's mandatory climate risk disclosures to Europe with its sustainability ratings for funds and green bond taxonomy. The U.K., Singapore, and India are all in various stages of introducing compulsory corporate climate risk reporting.

That SEC's tardiness can be partly blamed on the Trump administration's vehement dislike of any climate action during its four years when many other countries were laying the groundwork on climate-finance regulation. But being late to the party might have given the U.S. regulators an edge over some of their peers who started earlier, even while the SEC stays within a very narrow definition of its mandate.

One advantage is that some of the hard work of defining the parameters of financial climate risk has already been done. How do you measure the emissions created by various lines of business in a complex entity such as a bank? How do you avoid double-counting emissions? The SEC can draw on countless papers that have been published on these topics by regulators, financial firms, academics and nonprofits in the last five years.

It's more than just a technocratic convenience. The SEC could now become a powerful force against greenwashing, simply by setting out some straightforward reporting requirements for companies that claim they're taking responsible action to combat global warming.

The agency proposes that companies with publicly declared targets to cut their greenhouse gas emissions will have to set out some basic details of how they plan to get there. That includes their units of measurement, time horizons and baseline dates for measuring changes.

It's hardly an onerous demand. The requirement won't apply to companies that haven't made such a pledge. The number of businesses that have climate commitments, however, is growing rapidly. The SEC cites a report that found two-thirds of S&P500 companies have set some kind of carbon reduction target. The international "Race to Zero" campaign counts 5,235 companies as having committed to "net-zero emissions." A few years ago, such initiatives barely existed.

Anyone who looks through these targets will immediately notice that they're often thin on details. Companies might not specify if they only intend to cut operational emissions — such as staff travel and electricity used to power their offices — or the full reach of their emissions, including products sold by oil companies or fugitive methane emissions from projects funded by a bank. They may also neglect to set an interim target, meaning they're not committing to doing much before 2040 or 2050.

One of the biggest loopholes in corporate climate targets and pledges, however, is the reliance upon carbon offsets. There are numerous ways that companies claim to cancel out their emissions, but a popular method is paying for landowners to not cut down trees that may not have been at any risk in the first place, or sponsoring emissions reductions projects that would have happened anyway. These measures are a weak substitute for cutting emissions from business operations themselves.

To be clear, investors want these plans and pledges, and with good reason. Many asset managers and banks have themselves committed to aligning their investments with net zero emissions, which won't be possible unless their portfolio companies are on a similar path.

Investment firms are enthusiastic in part because of the booming demand for products that can take into account environmental, social and governance factors, of which climate change is a key concern. These ESG assets are growing at a furious pace with Bloomberg Intelligence estimating they will reach $41 trillion by the end of this year. Funds that rely on ESG marketing but include highly polluting companies with no real ambition to cut emissions are increasingly vulnerable to pushback from clients and campaigners. In the EU, such funds are also subject to rules about their labeling.

It's important to remember that there are limits to how much the SEC can do. Republican politicians and opponents of climate action are keen to stymie the rules, which are now in a 60-day consultation period.

But there are reasons to be hopeful. Climate-related disclosures need to be more detailed and more consistent. The basis of a lot of current mandated reporting is the Task Force on Climate-Related Financial Disclosures. (Michael R. Bloomberg, founder of Bloomberg LP, is the chairman of TCFD.) Its recommendations, published almost five years ago, set out a framework for defining risks but also allowed broad discretion. That's made it difficult to compare one company's data with another — a problem that was highlighted in numerous submissions to the SEC from financial firms, investor alliances and companies themselves.

The SEC isn't planning to tell companies what to do, but it is planning to require some more specific reporting parameters, based on the growing consensus within the financial sector and the regulatory community about which metrics are important. It it goes ahead, the SEC would help simplify and speed up a process that's already underway. That matters because in tackling climate change, we're running out of time.

Kate Mackenzie reports for Bloomberg News.

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