Securities and Exchange Commission Chairman Gary Gensler’s call for mandatory climate risk disclosure suggests the U.S. is back on the heroes’ side of the climate fight. Yet, if the power of markets is to be sufficiently harnessed to bend the emissions curve, we need to beware of half-measures.

Gensler said last week that he has asked agency staff to consider whether companies should be required to report their current emissions picture in their annual 10-K filings, in a standard and legally binding way. This would be a helpful step, but insufficient. It is a half-measure.

What investors really need to steer their portfolios are honest forward-looking statements from companies related to their exposures, and their plans to reduce their carbon impacts via capital expenditures and operating expenses.

Big hurdle for the SEC

No specific climate-disclosure mandate exists today, so it will be a heavy lift for the SEC to set up the framework and for companies to disclose new data, which has long been sought by investors, advisers and asset managers.

In the absence of a regulatory focus on climate over the past five years, the environmental, social and corporate governance (ESG) data market itself has evolved rapidly with competing offers to help asset managers and company leaders evaluate and disclose their risk assessments and to use them in their decision-making process.

As founders of a company in the field of climate analytics, we can tell you: The view from the dirty-data, gritty engine room of financial analysis of climate risk that, yes, it would absolutely be helpful to have current emissions data, reported in a standardized way.

Hodgepodge disclosures

For example, most voluntary climate risk disclosures made by companies today amount to a hodgepodge of net-zero pledges, or some non-standard data on how a company might be impacting the build-up of atmospheric greenhouse gases. That is certainly useful.

Even better would be a mandate that Scope 1, 2 and 3 emissions data be cleanly reported. (Scope 1 being a company’s direct emissions; Scope 2 data, which is indirect usage from use of, for instance, electricity; and Scope 3 data being from other sources in the value chain, such as supply chain emissions.)

But even then, once we have in-depth current emissions reported to standards, and it fits nicely into rows in spreadsheets, we will still find ourselves looking backward. When it comes to the high stakes of climate change, that is wildly inadequate. It’s like driving a car speeding toward a cliff and navigating by looking in the rearview mirror.

Far more relevant would be forward-looking disclosures on how a company views the impact of climate change on their operations, adjustments to their operating or capital expenditures to adapt to a changing environment, including plans to invest in upgrades to renewable energy. And then there should be a directive for progress to be reported as investments and adaptations are implemented.

Currently, companies make net-zero commitments for decades in the future, which can be as binding as a New Year’s resolution.

Once we begin looking forward, it gets complicated. The actions that should be taken by companies are highly diverse — an oil company has very different moves to make than, say, a retailer. Armies of quants can analyze correlations and dependencies, but nobody but a company’s management will really know what those dependencies are, and what actions they are willing to take to steer through the climate crises ahead.

The SEC’s Gensler will not be able to standardize the totality of financial disclosure. The issue for him to consider is what should be the American response to a global conversation about financial markets and regulations related to climate change.

Common standards

This is where scenario analysis comes in, as recommended by the Financial Stability Board’s Task Force on Climate Related Financial Disclosures (TCFD).

In short, the TCFD has it right. Its leadership has always included a trans-Atlantic character and its recommendations include the integration of forward-looking climate change risk disclosure, reported within the range of likely climate scenarios.

Against this realistic view of possible climate outcomes, companies should be held to charting their own path. Companies need the latitude to innovate and align their emissions goals to appropriate emissions targets and build resiliency in their own very dynamic business environments. Then the market can decide which participants are on the path, and which ones are going to suffer under inevitable fossil fuel regulation and price shifts.

It’s not unlike regulations for reporting financial results. There are common standards for reporting quarterly revenue, profit and loss. We should have similar standards for that same snapshot view of Scope 1, 2 and 3 emissions data.

Future plans are more like a company’s outlook and risks as outlined in their financial filings. It should be guided by principles, rather than standardized prescriptions.

Providing such a framework of principles is a market-regulation challenge that is arguably one of the biggest in history. The fate of the planet hangs in the balance. If Gensler gets it right, America will reemerge as the global leader in this crisis and our grandchildren will thank him.

Thomas H. Stoner Jr. is the CEO of Entelligent, which provides climate analytics to help investors ascertain the impact of climate change. He is the author of “Small Change, Big Gains: Reflections of an Energy Entrepreneur’’ David Schimel is a Nobel laureate climate scientist and the chairman of Entelligent.

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