The US Securities and Exchange Commission voted Wednesday to require companies to release climate risk disclosures. The policy will compel companies to be more transparent about their environmental impacts with investors and the public.

Under the disclosure, public companies will have to release their greenhouse gas emissions, environmental risk impacts, and risk management strategies. Companies will also have to comply between 2025 and 2033 — depending on the type of company, its size, and whether it is foreign or domestic.

The rule comes as the global cost of climate change has risen significantly. Climate events like wildfires, floods, hurricanes, and extreme temperatures cost about $16 million an hour in damages between 2000 and 2019, per the World Economic Forum. Over 371 weather and climate disasters in the US since 1980 have topped $1 billion in damage.

In 2010, the SEC set climate reporting guidelines. The specific disclosure rule was first introduced in March 2022, and the SEC has since received over 15,000 comments from experts, corporate leaders, and the public about the proposal.

"I'm pleased to support this adoption because it benefits investors and issuers alike," SEC Chair Gary Gensler said at the March 6 meeting. "It would provide investors with consistent, comparable, decision-useful information, and issuers with clear reporting requirements."

Previously, companies only disclosed their climate impact information on a voluntary basis. There has been no standardized way to report climate data, and many companies used different metrics or chose not to report at all.

SEC documents reviewed by BI show that the disclosure will require companies to share how climate conditions affect their business strategy, operations, and financial condition.

Their reported information must include direct emissions like manufacturing and indirect emissions like energy use.

Companies will not be required to report emissions from supply chains and product consumers, SEC members said on Wednesday. The supply chain disclosures were in the original rule proposal, but not adopted. For companies that sell many products or finance infrastructure — like food companies, oil and gas majors, and big banks — these emissions are often the biggest chunk of their overall carbon footprint.

Steven Rothstein, managing director of Ceres Accelerator for Sustainable Capital Markets — a nonprofit that works on corporate and investor sustainability solutions — told Business Insider that without the SEC's climate disclosure, environmental information was available but was not consistently reported or easy to compare companies.

"We believe you can't manage a problem if you can't measure it first," Rothstein said.

However, the climate disclosure rule won't necessarily require companies to use sustainable business practices, Rothstein said.

"If a company wants to waste water, energy, and pollute, there's nothing in this rule that would prevent them from doing that," Rothstein said. "This is not an environmental protection law, it is a disclosure law."

Still, Rothstein said the increased availability of corporate information to the public will better inform investors and might motivate journalists and public employees to act.

Bryan McGannon, managing director of the nonprofit sustainable investment forum US SIF, said the climate disclosure is "a really good first step" toward increasing transparency.

Disclosures will give investors and the public a better understanding of how individual companies are understanding and addressing climate risks, he said.

"I think that there's going to be very valuable for investors to use this information to get that better understanding — and understand if the company is taking it seriously," McGannon said. "Are they identifying all the risks?"

McGannon said there is a lot of climate reporting that is not being done right now, and the disclosures will allow investors to better digest a company's climate data and make good investment decisions.

If a company's disclosure is wrong or incomplete, CNBC reported that it could be sued by the SEC. The SEC might also be facing litigation from corporate America, which hopes to challenge the new climate disclosure in court, McGannon said.

Some companies might be concerned about the potentially high costs of gathering data and complying with the disclosure, SEC officials said.

Business lobbyists and Republican lawmakers have also opposed the disclosure requirements, while many climate advocates say the environmental disclosures requirements should be stronger.

The SEC's disclosure rule comes alongside increasing climate legislation across the country.

Last fall, California Gov. Gavin Newsom signed two bills that required large companies to biennially report their financial risks from climate change, and their global emissions of carbon dioxide and other planet-warming greenhouse gases.

Michigan also recently introduced a Healthy Climate Plan and passed the Clean Energy and Jobs Act — legislation with paths toward carbon neutrality for the state.