SEC takes up narrower climate disclosure rule after heavy pushback from companies, others

WASHINGTON — The U.S. Securities and Exchange Commission has weakened a proposed climate disclosure rule after strong pushback from companies and others, and will no longer require companies to report some greenhouse gas emissions.

Ahead of a planned vote by commissioners Wednesday, the SEC said the final version would not include requirements for publicly traded companies to report some indirect emissions known as Scope 3. Those don’t come from a company or its operations, but happen along its supply chain — for example, in producing the fabrics to make a retailer’s clothing — or that result when a consumer uses a product, such as gasoline.

Companies, business groups and others had fiercely opposed requiring Scope 3 emissions when the SEC proposed its rule two years ago. They said quantifying such emissions would be difficult, especially in getting information from international suppliers or private companies.

The SEC said it had dropped the requirement after considering comments from companies and others related to the cost of reporting Scope 3 emissions and the reliability of such information. Environmental groups and others in favor of more disclosure had argued that Scope 3 emissions are usually the largest part of any company’s carbon footprint and that many companies are already tracking such information.

The final rule also reduces reporting requirements for other types of emissions, known as Scope 1 and 2. Scope 1 emissions refer to a company’s direct emissions, and Scope 2 are indirect emissions that come from the production of energy a company acquires for use in its operations.

Under the final rule, companies only have to report those emissions if they believe they are “material” — in other words, significant — to investors — a decision that ultimately allows companies to decide whether they need to disclose emissions-related information. And small or emerging companies don’t have to report emissions at all.

The final rule will affect publicly traded companies with business in the U.S. ranging from retail and tech giants to oil and gas majors, and has drawn intense interest in the two years since it was first proposed, with more than 24,000 comments from companies and others.

The SEC estimates that roughly 2,800 U.S. companies will have to make the disclosures and about 540 foreign companies with business in the U.S. will have to report information related to their emissions.

The goal of the rule was to require companies to say much more in their financial statements about the risks that climate change poses to their operations and about their own contributions to the problem. That includes the expected costs of moving away from fossil fuels, as well as risks related to the physical impact of storms, drought and higher temperatures intensified by global warming. The SEC has said many companies already report such information, and the SEC’s rule would standardize such disclosures.

The public comment period for the rule had been extended several times, and SEC Chairman Gary Gensler acknowledged to lawmakers in Washington last year that debate over Scope 3 emissions was delaying the final rule, with many observers predicting swift legal challenges.

Some Republicans and some industry groups accused Gensler, a Democrat, of overreach. Their criticism largely centered on whether the SEC went beyond its mandate to protect the financial integrity of security exchanges and investors from fraud.

Gensler said at Wednesday’s meeting that since the SEC released guidelines in 2010 for companies to report climate-related information, far more companies are disclosing such information and investors ranging from individual ones to large asset managers were making decisions based on such information.

“It’s in this context that we have a role to play with regard to climate-related disclosures,” Gensler said.

Coy Garrison, an attorney who advises companies on SEC reporting and disclosure requirements, said dropping Scope 3 emissions from the rule was unlikely to deter litigation. He called the rule “a vast expansion of disclosure requirements” and said the amount of information required and cost to compile it “will continue to raise concerns that the SEC is acting beyond its statutory authority in adopting this rule.”

Three of the SEC’s five commissioners, including Gensler, were appointed by President Joe Biden. Two were appointed by then-President Donald Trump.

The SEC rule comes after California passed a similar measure last October that requires both public and private companies operating in the state with more than $1 billion in revenue to report their direct and indirect emissions, including Scope 3. More than 5,300 companies will be required to report their emissions under the California rule, according to Ceres, a nonprofit that works with investors and companies to address environmental challenges. The European Union also adopted sweeping disclosure rules that will soon take effect.


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