WASHINGTON — The U.S. Securities and Exchange Commission has weakened a proposed climate disclosure rule after strong opposition from companies and others, and will no longer require companies to report certain 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 a number of indirect emissions known as Scope 3. These do not arise from a company or its activities, but take place along its supply. chain – for example when producing the fabrics for a retailer’s clothing – or those created when a consumer uses a product, such as petrol.
Companies, business groups and others strongly opposed requiring Scope 3 emissions when the SEC proposed its rule two years ago. They said quantifying such emissions would be difficult, especially when obtaining information from international suppliers or private companies.
The SEC said it dropped the requirement after considering comments from companies and others about the costs of reporting Scope 3 emissions and the reliability of such information. Environmental groups and others in favor of greater disclosure had argued that Scope 3 emissions typically make up the largest share of any company’s carbon footprint and that many companies already track 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 result from the production of energy that a company obtains for use in its activities. activities.
Under the final rule, companies are only required to report these emissions if they believe they are material to investors – a decision that ultimately allows companies to decide whether to disclose emissions-related information.
The final rule will affect publicly traded companies with operations in the US, ranging from retail and technology giants to oil and gas giants, and has attracted intense interest in the two years since the first proposed rule, with more than 16,000 responses from companies and others.
The SEC estimates that approximately 2,800 U.S. companies will be required to make the disclosures and approximately 540 foreign companies with operations in the U.S. will be required to report information related to their emissions.
The aim of the rule was to oblige companies to say much more in their annual accounts about the risks that climate change poses to their business operations and about their own contribution to the problem. That includes the expected costs of moving away from fossil fuels, as well as the risks associated with the physical impact of storms, droughts and higher temperatures amplified by global warming. The SEC has said that many companies already report such information, and that 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 the debate over Scope 3 emissions delayed the final rule, with many observers predicting swift legal challenges.
Some Republicans and some industry groups accused Gensler, a Democrat, of overreaching. Their criticism focused largely on whether the SEC went beyond its mandate to protect the financial integrity of stock exchanges and investors from fraud.
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 has also adopted far-reaching disclosure rules that will come into effect soon.
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