Upcoming SEC climate-disclosure rules will likely present a major challenge to public companies, according to climate watcher David Callaway. President Biden’s recently released rules for federal contractors signal how the SEC rules might look, he says.
Now that COP27 in Egypt is over and the US midterm elections yielded a divided Congress, the next major event in the climate finance world will be the Securities and Exchange Commission’s new rules on climate reporting for public companies. One clue as to what the rules will look like may have just come from the Biden administration.
Bankers and regulators don’t expect SEC Chair Gary Gensler to release the new rules until early next year, after they were delayed indefinitely last month following an unprecedented comment period that drew more than 14,000 letters. The rules will almost immediately trigger litigation from companies, business groups, and Republican opposition, which will argue the agency is exceeding its authority to regulate Wall Street by trying to fight climate change.
“There are different interests at play here,” David Atkin, chief executive of the Principles for Responsible Investment in London, a UN-supported organization, told me. “We think directionally they’re heading toward the right place, though we think there is still some tweaking to be done.”
Scope 3 Emissions
Tweaking may be understating it. At the heart of the debate is a controversy over the inclusion of specific data about greenhouse gas emissions from a company’s supply chains, known as Scope 3 emissions. Scope 1 emissions, which are a company’s direct emissions, and Scope 2, which are emissions produced from the energy it uses, are much easier to tally than Scope 3, which for large companies could involve hundreds of suppliers.
Scope 3 emissions are typically the majority of any large company’s pollution footprint. Big companies such as HP, Ford Motor Co., and Unilever are already voluntarily working to reduce them, according to Ceres, a research network supporting sustainable capital markets. Many others argue it would be too hard to control the emissions of massive lists of suppliers and might even dilute the value of their climate reporting, especially if they are included in financial statements as the SEC proposed.
Bloomberg Law, 23-11-22