The U.S. securities regulator on Monday unveiled a landmark proposal requiring U.S.-listed companies to disclose their climate-related risks and greenhouse gas emissions, part of a push by President Joe Biden’s administration to address financial risks created by global rising temperatures.

The long-awaited U.S. Securities and Exchange Commission (SEC) draft rule should help investors better understand how climate change will affect the companies they invest in, but it is set to increase the reporting burden for Corporate America.

Among its key requirements: Companies must disclose their own direct and indirect greenhouse gas emissions, known as Scope 1 and 2 emissions, respectively, as well as those generated by suppliers and partners, known as Scope 3 emissions, if material.

More broadly, they must disclose the “actual or likely material impacts” climate-related risks will have on the company’s business, strategy and outlook, which could include physical risks as well as new regulations such as a carbon tax.

The SEC’s chair, Gary Gensler, said the agency was responding to investor demand for consistent and comparable information on climate-related risks that may affect a company’s financial performance.

“Companies and investors alike would benefit from the clear rules of the road,” he said.

Progressives and activist investors have pushed for the SEC to require Scope 3 emissions disclosure as the best way to incentivize companies to produce less carbon dioxide and methane.

Corporations have been pushing for a narrower rule that will not boost compliance costs too sharply. The Scope 3 requirement will include carve-outs based on a company’s size and will be phased in gradually.

“This proposal will be the light in a pathway toward addressing President Biden’s priority of disclosing climate risk to investors and all areas of our society,” said Tracey Lewis, a policy counsel at Washington-based advocacy group Public Citizen. “There will be a lot of critics. People are going to try to tear it down, even probably from the left.”

The draft proposal will be subject to public feedback and is likely to be finalized later this year.

Legal Challenges

Given the expected contentiousness of the proposal, the SEC has spent the past week shoring up the draft against potential legal challenges, especially from the oil and gas lobby, six sources told Reuters.

Corporate groups have argued there is no agreed methodology for calculating Scope 3 emissions and that providing so much detail would be burdensome and would expose companies to costly litigation if the third-party data ends up being wrong.

Any legal challenges will likely argue that the SEC lacks the authority to require Scope 3 emissions data, something the agency’s lone Republican Commissioner has said.

With more than $649 billion pouring in to environmental, social and governance-focused funds worldwide last year, investors have called for companies to provide better climate-change data, which is currently disorganized, patchy and difficult to compare.

“We do have information. The problem is that it’s a hot mess,” said Isabel Munilla, director of U.S. Financial Regulation at Washington-based Ceres Accelerator for Sustainable Capital Markets.

These issues show the SEC has sufficient grounding for its rule, say experts.

“I don’t think anyone considering the evidence fairly could have the tiniest doubt as to whether investors have demanded disclosure,” said John Coates, a Harvard University professor who worked on the early stages of the rule during his stint as the SEC’s acting director of corporation finance last year.

(Reporting by Katanga Johnson in Washington; Editing by Michelle Price, David Gregorio and Matthew Lewis)