Today, Reuters reported exclusively that the SEC is indeed planning to eliminate some of the more controversial requirements in its climate disclosure proposal. Of course, we’re talking Scope 3. (See this PubCo post, this PubCo post and this PubCo post.). To be sure, this news doesn’t come as a complete surprise. Even a year ago, the SEC floated the idea that, in response to concerns regarding potential litigation (among other things), it may well pare down and loosen up some of its proposed rules on climate disclosure. In this article in Politico and this article in the WSJ, “three people familiar with the matter” and “people close to the agency” told reporters that SEC Chair Gary Gensler was “considering scaling back a potentially groundbreaking climate-risk disclosure rule that has drawn intense opposition from corporate America.” But at that point, according to Politico, SEC officials stressed that “no decision has yet been made.” (See this PubCo post.) Reuters is now reporting that, according to “people familiar with the matter”—are they the same people, I wonder?—among the requirements the SEC plans to scrap in the final rules is the requirement to disclose Scope 3 GHG emissions.
You’ll recall that one of the most controversial parts of the SEC’s climate disclosure proposal draws on the Greenhouse Gas Protocol, requiring disclosure of a company’s Scopes 1 and 2 greenhouse gas emissions, and, for larger companies, Scope 3 GHG emissions if material (or included in the company’s emissions reduction target), with a phased-in attestation requirement for Scopes 1 and 2 data for large accelerated filers and accelerated filers. There haven’t been that many complaints about the Scope 1 and Scope 2 requirements, but Scope 3 is another matter. According to the SEC, some commenters indicated that, for many companies, Scope 3 emissions represent a large proportion of overall GHG emissions, and therefore, could be material. However, those emissions result from the activities of third parties in the company’s “value chain,” making collection of the data much more difficult and much less reliable. (See this PubCo post.)
The article observes that “[s]caling back these rules would be a blow” to the climate agenda of the current administration, particularly as, for “most businesses, Scope 3 emissions represent more than 70% of their carbon footprint, according to consulting firm Deloitte.” But Scope 3 requirements have come under fire from many companies and politicians—Republicans and even some Democrats and Independents. (See, e.g., these comments from Senator Amy Klobuchar and Senators Jon Tester and Kyrsten Sinema.) In particular, concerns have been raised about how the requirement might affect private companies in the value chain. However, both the EU rules and new California legislation mandate Scope 3 disclosure (see this PubCo post).
Reuters also reports that some lobbyists were pushing the SEC to require Scope 1 and Scope 2 disclosures only if material, but Reuters said that it “could not ascertain whether the latest draft changed the Scope 1 and 2 requirement threshold.”
An SEC spokesperson told Reuters that adjustments to the proposal were based on public feedback, but otherwise declined to comment on the contents of the proposal. Nor would the SEC comment on the timing of potential adoption of the climate risk rules, telling Reuters that the SEC “moves to adopt rules only when the staff and the Commission think they are ready to be considered.”
Reuters suggests that a reason for shedding some of these requirements may be the concern of some SEC officials that a sweeping set of disclosure requirements, including Scope 3, might be an invitation for litigation, “which, if successful, could tie the agency’s hands when writing other rules.” Those concerns may have been exacerbated by the recent SCOTUS decision giving its imprimatur to the “major questions” doctrine in West Virginia v EPA, as well as other issues raised by critics—both corporate and political—doubting the SEC’s authority. (See this PubCo post.)
