Investors, customers, and employees are increasingly interested in evaluating firms’ environmental impact. This is good news. We are all better off when companies are accountable for their actions. Seizing on this trend, the SEC has a pending proposal to mandate disclosure of companies’ carbon emissions and Governor Newsom has committed to signing a bill that does the same in California. This is bad news. Mandatory disclosures will do more harm than good.

The mandates require companies to disclose their direct emissions (Scope 1 emissions), the emissions of others used to power their operations (Scope 2), and the emissions in their supply chain (Scope 3). In California, even employees’ travel and commutes would be included. The SEC estimates that compliance with its proposed rule would cost almost $6.5 billion annually, more than doubling companies’ overall costs of disclosure. Economists estimate the costs at many times this amount. The California mandate will add to these costs.

What do we get for all this money, other than more employment for consultants, lawyers, and accountants? Not much. Estimates of direct carbon emissions already exist absent mandates. S&P’s Trucost, for instance, provides detailed emissions data for several thousand companies based on voluntary disclosures and its own estimates and models. A recent study in Science uses these data to compare across industries and among companies in particular industries, giving investors and others the kind of information they need.

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