The vote was 3 to 1, and the one was predictable. On 21 March 2022 the Securities and Exchange Commission agreed to put out for comment a rule that would make listed companies report their greenhouse gas emissions and spell out how climate change could hurt their business. Commissioner Hester Peirce voted no, saying the requirements did not properly weigh materiality and went beyond what the commission is meant to do.
NPR noted that it would be the first time the SEC had required such reporting. Some firms, Apple among them, already publish climate figures voluntarily. Until now nothing standard had been imposed.
What companies would have to say
Under the proposal, firms would report the risks “reasonably likely” to have a material effect on their business, results or finances, in registration statements and periodic reports. Certain climate-related metrics would go into a note to the audited financial statements. Reuters added that companies would have to describe the “actual or likely material impacts” on strategy and outlook, physical risks and possible new regulation such as a carbon tax among them. Anyone with emissions goals or plans to move away from fossil fuels would have to say how and when.
The emissions themselves are sorted into scopes. Scope 1 is a company’s direct emissions. Scope 2 covers indirect emissions from purchased electricity and other energy. Large filers would need an independent attestation report on both, the Journal of Accountancy said.
Scope 3 is where the argument sits. It means the emissions of suppliers and customers, up and down the value chain. Companies would report it only if it is material, or if they have set a target that includes it. Smaller reporting companies would be exempt, and Scope 3 figures would get a legal safe harbor. The SEC said the emissions disclosures would be phased in between 2023 and 2026, according to Reuters. NPR calculated that firms might not have to file climate information until 2024 at the earliest.
Who liked it, who did not
SEC chair Gary Gensler said the agency was answering investor demand for consistent information. “Companies and investors alike would benefit from the clear rules of the road,” he said. He also reached back to the 1930s: investors choose which risks to take, he said, “as long as public companies provide full and fair disclosure.”
The opposition arrived quickly. Senator Patrick Toomey, the top Republican on the Senate Banking Committee, said the rule “extends far beyond the SEC’s mission.” The U.S. Chamber of Commerce called it too prescriptive. Tom Quaadman of the Chamber said it would “advocate against provisions of this proposal that deviate from” the materiality standard. Corporate groups also argued that no agreed method exists for calculating Scope 3 emissions.
Supporters were just as plain. Tracey Lewis of Public Citizen called the proposal “the light in a pathway” toward disclosing climate risk to investors. Reuters pointed out that a record $71 billion flowed into U.S. environmental, social and governance funds the year before, according to Morningstar, which experts cited as proof investors need better data.
It was not final. The public would have 60 days to comment, and Reuters said the SEC had spent the previous week reinforcing the draft against legal challenges. Reuters expected a final version later in 2022.
Sources
- U.S. SEC proposes companies disclose range of climate risks, emissions data (Reuters, Katanga Johnson)
- The SEC wants companies to disclose how climate change is affecting them (NPR, David Gura)
- New SEC proposal would ramp up climate-change disclosures (Journal of Accountancy, Ken Tysiac)
Sources
- SEC Proposes Climate-Related Disclosure Requirements – JDSupra
- Summary of Comment Letters for the SEC's Proposed Climate Risk …
