U.S. regulators proposed stringent requirements for publicly traded companies to report information on greenhouse-gas emissions and risks related to climate change.

The Securities and Exchange Commission formally offered a 534-page proposal Monday that would force publicly traded companies to report greenhouse-gas emissions, reported The Wall Street Journal.

SEC members voted 3-1 to issue the proposal, which will be open for public comment for at least two months before the agency begins working on a final rule.

What happened: The proposal would require public companies to provide estimates of direct and indirect greenhouse gas emissions. The companies will have to report greenhouse gas emissions from their own operations and the energy they consume and obtain independent certification of their estimates.

This is referred to as the Biden administration’s potentially most significant environmental actions to date, WSJ notes.

Companies might also be required to report the greenhouse-gas output of both their supply chains and consumers, known as Scope 3 emissions. As per an SEC official, most companies in the S&P 500 would likely have to report Scope 3 emissions. Companies to include the information in SEC filings.

SEC Chairman Gary Gensler mentioned that investors and asset managers representing tens of trillions of dollars have called for companies’ climate-related disclosures to be more standardized.

Republicans and some industry groups noted that the proposed rules would increase compliance costs and go far beyond a strict interpretation of the SEC’s mandate to protect investors by requiring disclosure of information relevant to companies’ financial performance.

“Investors and businesses have for years asked for reliable information that can be used to assess climate-related risks and opportunities,” stated Treasury Secretary Janet Yellen in a statement. She added that the rule would protect investors and make the financial system more resilient.

Why It’s Important: This will provide reliable information that can be used to assess climate-related risks and opportunities.

The rules proposed allow companies a degree of flexibility. Disclosure of Scope 3 emissions would be mandatory only if the output of those greenhouse gasses is material or significant to investors or if companies outline specific targets for them.

The SEC’s proposal would require publicly traded companies to include estimates of the impact of both physical risks and transition risks in their financial statements.

The energy and transportation firms have opposed far-reaching disclosure requirements around climate; other industries and investor groups have been supportive.

SEC Proposes Mandatory Disclosure Of Climate-Change Risks, Emissions: WSJ