SEC says companies must disclose their greenhouse gas emissions – but not all

The U.S. Securities and Exchange Commission (SEC) has adopted new rules that force major companies to disclose their greenhouse gas emissions and tell investors how their businesses are affected by climate change.

The new rules are weaker than what the SEC initially proposed in March 2022, which would have provided a more complete picture of a company’s carbon footprint. Initially, it wanted each company to share the pollution resulting from its operations, as well as the emissions from its supply chain and the use of its products. Under the rules finalized today, companies will not have to measure and disclose pollution from their supply chains and products – even though those emissions often make up the largest share of a company’s carbon footprint.

As a result, environmentalists are advocating And Trade groups that opposed the SEC’s original proposal all score a partial victory. The new rules provide much more transparency than ever before about a company’s impact on the environment. Climate advocates, meanwhile, say the rule could still be strengthened.

“You can’t control the problem if you can’t measure the problem first.”

“From the SEC’s perspective [the rule] will provide more consistent information for investors, and that’s good for capital markets… investors have been asking for it because they understand that climate risk is financial risk, and you can’t manage the problem if you can’t first measure the problem,” says Steven Rothstein, director of the Ceres Accelerator for Sustainable Capital Markets.

The rule also requires large companies registered with the SEC to share the impacts and risks they face as a result of climate change. But the biggest battle over this rule has been over how transparent companies should be about their greenhouse gas pollution.

A company’s carbon footprint – how much global warming pollution it produces – is measured in three ‘scopes’. The scope that includes indirect emissions from the supply chain and consumers – Scope 3 – has been hotly contested since the SEC first proposed a climate disclosure rule in 2022.

“We do not believe that the purpose of Scope 3 disclosure requirements should be to push publicly traded companies into the role of enforcing emissions reduction targets beyond their control,” BlackRock said in a June 2022 statement.

“This tracking [of Scope 3 emissions] will be extremely expensive, invasive and burdensome to farmers and ranchers,” agriculture groups, including soybean, corn, beef and pork producers, wrote in their comments to the SEC.

After facing swift backlash from industry groups, particularly in agriculture and banking, and collecting some 24,000 comments from the public, the SEC exceeded the original 2023 deadline to finalize the rule and ultimately weaken it. “While many investors have commented on this, and many investors today use Scope 3 information in their investment decisions, based on public feedback we are not requiring disclosure of Scope 3 emissions at this time,” said SEC Chairman Gary Gensler. today in an open meeting.

More broadly, Republicans have brought a charge against ESG investing, or investing that takes environmental, social and governance factors into account. And the US is facing the possible return of former President Donald Trump, who rolled back more than 125 environmental regulations during his first term – so the fate of the rules now on the book could all depend on the outcome of the election this year.

Under the rules introduced today, large publicly traded companies will still have to report direct emissions from their operations and energy consumption that are “material” or essential to investors’ understanding of a company’s financial condition. These disclosures would begin for fiscal year 2026. “If the SEC does not include scope three, then [the rule] will be incomplete. But we still think it will be a step forward,” Rothstein said in an interview with The edge before the rules were finalized.

Companies doing business in California may still find themselves having to share their Scope 3 emissions after the state passed a broader bill last year. Companies with annual revenues of more than $1 billion would be required to publicly report greenhouse gas emissions from their operations and electricity use by 2026 and disclose Scope 3 emissions the following year. The California Chamber of Commerce, American Farm Bureau Federation and other business groups have already sued to stop its implementation. And similar legal challenges are expected with the SEC’s new rule.

However, other companies are more supportive of disclosures. “While these emissions can be challenging to measure, they are essential to understanding the full impact of a company’s climate impacts,” Apple director of state and local government affairs Michael Foulkes wrote in a statement. letter before California passed its climate disclosure rule. Already, more than 80 percent of the 1,000 largest publicly traded companies in the US share climate-related information in their ESG reports.

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