To perform correctly, markets need relevant information and prices that consider externalities. In the case of climate change, we are not there yet. We do not know how much a company and its products damage the environment. We do not have the key information to favour a circular economy. Attempts to raise fossil fuel prices to reflect harmful externalities are very limited, and finally, schemes to offset the production of greenhouse gases may not work.

Currently, equity investors and product consumers do not have the required information to make purchases of stocks or products, taking into consideration climate costs and risks. For example, the amount of greenhouse gases (GHG) a company produces is not available, nor is the company's climate risk policy. However, the US Securities and Exchange Commission has proposed requiring this for all companies traded on US exchanges. Companies must disclose their governance structures, risk management strategies, and metrics used to evaluate and manage their climate-related financial risks. The proposed rule also requires that companies’ disclosures be independently reviewed and their financial risks due to climate change be noted on their financial statements.

The proposal was introduced in March 2022 for comments and modifications. SEC Chairman Gary Gensler, testifying before the US House Financial Services Committee on April 18, said some 50,000 investors commented on the proposed rule, almost all in favour. The main point of contention in the proposal is the scope 3 disclosure, which requires companies to estimate suppliers’ and customers’ emissions. The debate hinges on the difficulty and cost of these calculations. Many retain that climate disclosure is coming in some form. “Precise details of the rule and its ability to be upheld in court do not matter. Regardless of the precise details of the final ruling and the regulatory delay, the overarching trend is clear and not to be ignored.

Companies are already moving to compile the data they would need to comply. The huge uptick in private consulting, assurance, and software solution companies geared towards sustainability data and reporting is another indication of where the market is headed, whether privately or by regulatory mandate” (Watchwire, p.2, 2023). An important voluntary method of disclosure, the Task Force on Climate-Related Financial Disclosures (TCFD), was established in 2015, and it is time to make climate disclosure obligatory.

The first mandatory filings are scheduled for 2024 (using 2023 data). The rule will be introduced in phases, starting with the largest issuers and moving to smaller enterprises, likely to cover more than 30,000 organizations by 2027. One hopes the climate disclosure regulation will be finalized within Biden’s mandate. Note that this does not imply that everyone will choose the product or company with lower emissions or the best risk policy, but that we will decide knowing what we are buying. Greenwashing will diminish.

A linear economy traditionally follows the “take-make-dispose” plan, meaning that raw materials are collected, transformed into products, and used until discarded as waste. Instead, a circular economy follows the 3R approach: reduce, reuse, and recycle. Resource use is minimized by reducing superfluous use; reuse of products and parts is maximized; and raw materials are reused (recycled) to a high standard. This can be done by using goods with more people, such as shared cars. Products can also be converted into services, like listening licenses, instead of CDs. For a circular economy, additional information is required, starting with the durability of a product and the possibility for it to be repaired.

On May 11 this year, the European Parliament voted to support a directive to improve product durability by banning planned obsolescence, addressing misleading greenwashing claims on consumer labels, and requiring that a product still function well with spare parts and consumables from a different manufacturer.

“To make products last longer, Parliament wants to ban the introduction of design features that limit a product’s life or lead to goods malfunctioning prematurely. Additionally, producers should not be allowed to limit a product’s functionality when it is used with consumables, spare parts, or accessories (for example, chargers or ink cartridges) made by other companies. In order to help people choose more lasting and repairable goods, buyers would have to be informed of any repair restrictions before making a purchase. Additionally, MEPs propose a new guarantee label indicating not only the length of the legally required guarantee but also the length of any possible guarantee extensions offered by producers. This would help highlight quality goods and motivate companies to focus more on durability” (News European Parliament, p. 1, 2023).

On September 11, the European Parliament and Council reached a provisional agreement on new rules to ban misleading advertisements and provide consumers with better product information. The agreement updates the existing EU list of banned commercial practices and adds to it several problematic marketing habits related to greenwashing and the early obsolescence of goods. The new rules aim to protect consumers from misleading practices and help them make better purchasing choices.

What will be banned?

Negotiators from Parliament and Council agreed to proscribe the following:

  • Generic environmental claims, e.g., "environmentally friendly," "natural," "biodegradable," "climate neutral," or "eco," without proof of recognized excellent environmental performance relevant to the claim.
  • Commercial communications about a good with a feature that limits its durability if information is available on the feature and its effects on the durability.
  • Claims based on emissions-offsetting schemes that a product has a neutral, reduced, or positive impact on the environment.
  • Sustainability labels are not based on approved certification schemes or established by public authorities.
  • Durability claims in terms of usage time or intensity under normal conditions, if not proven.
  • Prompting the consumer to replace consumables, such as printer ink cartridges, earlier than strictly necessary.
  • Presenting software updates as necessary even if they only enhance functionality features.
  • Presenting goods as repairable when they are not(News European Parliament, p. 1, 2023).

As indicated above, emission offsetting schemes are excluded if the company claims the offset positively impacts the environment. This is necessary because there is no accepted system of control. The offset may represent an investment that was going to be made anyway. Both parties, the purchaser of the offset and the realizer of the offset, may claim a reduction, resulting in double accounting. The timing of the offset may not correspond to the reduction claimed. I must admit I have done offsetting for airplane flights, more to raise my cost of flying, probably without any climate benefit. It also may be a moral scapegoat, and I should fly less.

Finally, the biggest problem is that fossil fuel prices do not reflect the social costs of air pollution and climate change. These costs to health and the economy from warming the planet and air pollution are considered externalities and not applied to fossil fuel prices. According to the WHO, the total premature deaths from fossil fuel air pollution are seven million people annually.

Most economists’ answer is to put the externalities back in, with a tax on fuels according to the carbon emissions (a measure of damage) they produce. The carbon tax revenues from polluters are to be recycled back to all those damaged (everybody, particularly those living near heavy traffic or polluting plants and those unable to pay the higher energy bills).

The principal problem with raising prices through taxation is the power of the oil and gas industry to oppose such moves. In the US, through PACs and super PACs, they have gained extraordinary political power, as reflected in their long history (since 1917) of tax deductions for the oil and gas industry. At the global level, in 2020, only 12% of emissions were in countries or sectors that had a carbon tax, with an additional 6% covered by a trading system (Ritchie & Rosado, 2022). The economic and political power of the oil and gas industry with respect to the diffused and less organized constituents has been able to limit the widespread experimentation with carbon taxes. This is the case of “regulatory capture.”

Where such experimentation was possible, there were emission reductions, but they were marginal and not deep. Sweden's road transportation emissions decreased by four percent from 1990 to 2015. In British Columbia, reductions are from 5 to 15 percent over four years. For the EU, the emissions trading system involving 23 countries has resulted in a decline of 3% for the first five years of operation. Carbon pricing has not yet produced deep reductions and is considered supplemental to other, more effective policies. (Tvinnereim & Mehling, 2018).

In conclusion, the fundamental GHG emission data and company climate risks are in the SEC Proposal of Rules to Enhance and Standardize Climate-Related Disclosures for Investors. The proposal must become operative, and you should let your political representatives know you support it. Similarly, with the circular economy, efforts to standardize durability and ‘repairability’ are to be encouraged. The EU is taking the lead, and many products are sold in both markets, adding pressure for uniform information.

The limited success of carbon taxes can be improved by curbing the enormous influence of the oil and gas industry. It is a daunting task. In the US, we need to rethink the appropriateness of PACs and Super PACs for climate improvement and for democracy itself (Mebane, 2021).

Let us not forget the importance of climate migration, urban planning, and multiple modes of transport. The creation of new green and cool urban spaces is essential for health. Initiatives to support energy efficiency in industry have a long history of success. Performance standards for buildings, vehicles, and appliances are effective. I worked in this area in the EU, and the energy consumption of household appliances was reduced by more than 50% in a decade. Solar production of electricity is competitive with fossil fuels. And finally, for the individual investor, new sustainable investments are appealing.


1 Mebane, W., (2021), Do super PACs threaten our democracy and climate?, June 10.
2 News European Parliament, (2023), Parliament backs new rules for sustainable, durable products and no greenwashing, May 11.
3 News European Parliament, (2023), EU to ban greenwashing and improve consumer information on product durability, September 19.
4 Ritchie, H., Rosado, P., (2022), Which countries have put a price on carbon?, October 14, Our World in Data.
5 Tvinnereim, E., Mehling, M., (2018), Carbon pricing and deep carbonization, Energy Policy 121, 185-189.
6 Watchwire, 2023, 2023 Update on the SEC Climate Disclosure Guidelines.