I’m sure everyone landing on this page has heard about the SEC’s proposed climate disclosure standards: a 500-page-long proposal marred by consultations, delays, backlash and chaos.
And if it wasn’t complicated enough already, on Friday last week Reuters reported that the SEC had scrapped a requirement to report on Scope 3 emissions from its original draft of the rules published in March 2022. ESG Dive says if the omission was to be confirmed, it ‘could create a compliance conundrum’.
When IR Magazine approached the SEC for comment, asking it to confirm or deny the allegations, a spokesperson said: ‘[The SEC] doesn’t comment on speculation about what may be in or out of a rulemaking. As the chair said, the commission benefits from robust engagement from the public on rulemaking proposals regarding the economics, the policies themselves and the SEC’s legal authorities.
‘Based on the public feedback, the staff and the commission consider possible adjustments to the proposals and whether it’s appropriate to move forward to a final adoption. The commission moves to adopt rules only when the staff and the commission think they are ready to be considered.’
That may be good news for those of you worried about the burden of these requirements. On the other hand, it may be a huge disappointment to those who believe comprehensive disclosure of emissions is crucial for investors and other stakeholders. But we’ll soon find out. On Wednesday this week, the SEC announced it will vote on March 6 on its proposed climate-related disclosure standards.
It’s certainly been a long and winding road to get here. In March 2022, the SEC voted for highly anticipated rule changes that, when finalized, would require certain businesses to report on direct greenhouse gas (GHG) emissions (Scope 1), indirect GHG emissions (Scope 2) and GHG emissions from upstream and downstream activities in their value chain (Scope 3).
That’s when many companies started working out – and, in many cases, dreading – how they would report on Scope 3 emissions.
At the time, though, the SEC said – perhaps to reassure companies – that the new rules had been drafted based on disclosure frameworks such as the TCFD. It seemed like the watchdog was saying ‘Don’t worry – if you already adopt and report according to TCFD requirements you will be in a good place if and when those new rules come in’.
Fast forward nearly two years and the TCFD has now been disbanded, replaced by the International Sustainability Standards Board. Amid drafts, revisions, rumors and delays, some frameworks have disappeared and some US states have even started making their own climate disclosure rules.
In October 2023, the California governor signed into law two landmark climate disclosure bills: Senate Bill 253 and Senate Bill 261. The state of New York has embarked on a similar journey, following the model set by the California emissions reporting requirements. Its bill, ‘An act to amend the environmental conservation law, in relation to climate corporate accountability’, is currently being considered by the Senate finance committee in a two-year legislative session. The list doesn’t end there, though.
During that time, the EU also developed the Corporate Sustainability Reporting Directive (CSRD), which came into force on January 5, 2023. The law requires large companies and all EU-listed companies to disclose information on what they see as risks and opportunities arising from ESG issues. Most importantly, it makes the double-materiality assessment and Scope 3 reporting very real.
The rule applies to European businesses that meet certain criteria, but it also applies to US companies with operations in the EU.
If the allegations regarding the SEC scrapping Scope 3 disclosures from its final rule are true, it will create an important dilemma for many US companies. It will also potentially force thousands of companies to comply with the CSRD, which has far more extensive Scope 3 requirements, while not having to report those emissions in their home market.
In fact, many companies already find themselves forced to follow CSRD in light of the continuous delays to the SEC rule.
What about investors’ expectations? It’s no secret that the US lags Europe on climate reporting. I’m sure many investors were and still are looking forward to a rule that will bring more transparency around these issues to the US.
And what about all the efforts and plans US companies have already implemented and laid out in preparation for the SEC rule? At many of the recent events hosted by both IR Magazine and Governance Intelligence, IR professionals, governance and sustainability experts have been encouraging companies to get ready to comply. Many, many hours have already gone into uncovering the corporate footprint at Scope 1, Scope 2 and Scope 3 levels.
Ultimately, the SEC has been so slow to bring this rule to finalization that, for many, Scope 3 reporting is coming whether the regulator asks for it or not.
Are you one of those who campaigned for the SEC rules to be watered down? Or are you one of those who would be utterly disappointed if the allegations around Scope 3 emissions were to be true? If you would like to share your views on the upcoming SEC environmental disclosure rule, get in touch via LinkedIn, or email me at noemi.distefano@irmagazine.com.
