After years of investors advocating for regulatory action on climate reporting, the Securities and Exchange Commission’s (SEC) climate disclosure policy is finally here.

In a Monday open meeting hosted by the SEC’s division of corporate finance, the Commission voted 3-1 in favor of rules requiring U.S. issuers to report on climate-related risks and opportunities in their annual reporting.

Under the proposed policy, U.S. issuers will be required to disclose their Scope 1 and 2 emissions annually within one year and will have a further two years to improve the quality of the data. Companies will also be expected to enhance their climate-related disclosure in their annual reporting, in line with recommendations from the Task Force for Climate-related Financial Disclosures (TCFD), and metrics and targets used in climate transition plans where a company has one in place. Companies should also disclose where carbon offsets or renewable energy targets are used to achieve decarbonization.

For such a nervously anticipated day, many investors seemed ecstatic with the rule in its proposed form.

Danielle Fugere, president and chief counsel of As You Sow, called the rules a “watershed moment in responding to investor demand for accurate climate disclosure,” while New York City Comptroller Brad Lander said in a press release that the rule will, for the first time, provide shareholders with “necessary, decision-useful data and encourage companies to evaluate the threats climate change poses to their fiscal health and sustainability.”

Where the story gets murkier is with Scope 3 emissions, which arise from a company’s value chain. While some comment letters sent to the SEC earlier this year argued that mandatory Scope 3 emissions reporting would be premature, many investors penned letters urging the U.S. regulator to include them in the requirements.

While the SEC’s new policy does call on issuers to disclose Scope 3 emissions where material, the question of what constitutes material is open to interpretation.

McKenzie Ursch, legal adviser at Follow This, told Insightia that while the SEC’s policy is certainly a step in the right direction, he is concerned by the “number of caveats and safe-havens which would allow companies an exemption from this sort of reporting.”

Following the vote, an SEC official told the Wall Street Journal that S&P 500 companies would be required to disclose Scope 3 emissions. Companies with a public float of less than $250 million will not be subject to Scope 3 reporting requirements.

“Only time will tell how the SEC will enforce those provisions,” Ursch said. “The exact definition and application of materiality has long remained elusive with the SEC, for ESG issues.”

Elizabeth Levy, head of ESG strategy and portfolio manager at Trillium Asset Management, similarly told Insightia that while the new rules are a “very strong step in the right direction,” a complete set of disclosures “needs to include Scope 3 emissions disclosure particularly from the most impacted industries, including fossil fuels and finance, regardless of size and whether they consider Scope 3 emissions material or not.”

Investors are expecting more companies to step up, not only disclosing Scope 3 emissions but setting reduction targets, despite their being generated outside of the company’s direct command. More proposals seeking Scope 3 emissions reporting targets are being filed at U.S.-listed companies than ever before, with United Parcel Services, Chevron, ConocoPhillips, and Exxon Mobil all facing calls for comprehensive emissions reporting ahead of their 2022 annual meetings.

One proposal seeking Scope 3 emissions reporting at General Electric won 98% support at the S&P 500 industrial company’s 2021 annual meeting, after being endorsed by management. Just two months later, the company announced its intention to set Scope 3 emissions reduction targets.

Without mandatory Scope 3 reporting, companies may “entirely omit” reporting on their largest contributions to climate change, Bruce Herbert, CEO of Newground Social Investment, told Insightia.

The final version of the policy, due to be published in the coming months, must leave no room for ambiguity if it wishes to establish a level playing field for companies.