Corporations fear U.S. SEC local weather rule could require broad emissions disclosures By Reuters

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By Katanga Johnson

WASHINGTON (Reuters) – As the US Securities and Exchange Commission finalizes a draft of a landmark new climate rule, environmental activists and activist investors want companies to disclose not only their own greenhouse gas emissions but also those of their suppliers and other partners.

Meanwhile, business groups are pushing for a stricter rule that makes collecting and reporting emissions data easier and cheaper, and protects them from being sued for possible mistakes.

Last year, the Securities and Exchange Commission (SEC) began work https://www.reuters.com/business/sustainable-business/sec-considers-disclosure-mandate-range-climate-metrics-2021-06-23 a new rule requiring US-listed companies to provide investors with detailed disclosures about how climate change could affect their business.

The rule is part of a broader effort by Democratic President Joe Biden’s administration to Address climate change challenges and reduce greenhouse gas emissions by 50-52% by 2030 compared to 2005 levels, an ambitious pledge https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/01/fact -sheet-president-biden-renews-our-lead-on-the-world-stage-at-the-un-climate-conference-cop26, where every federal agency must do its part.

Progressives and climate activists want the SEC to deliver a groundbreaking rule that reveals all emissions a company is responsible for, while many investors say they over-emissions-data-before-shareholder-meetings-2021-02-17 they are Need data to fully assess business vulnerability to climate change and related policies.

First, the SEC, under Chairman Gary Gensler, said it hopes to release a draft by October 2021. Last month, Gensler said she aims to release a draft in early 2022.

Staffers are still working on the rule, two people familiar with the matter said, and the SEC’s commissioners, who have to vote to propose regulations, have yet to see a draft.

A spokesman for the SEC declined to comment.

A key issue employees are grappling with is whether and how some or all companies should disclose the broadest measure of greenhouse gas emissions, also known as “Scope 3” emissions, the sources and company and investor advocates say.

The greenhouse gas emissions of companies fall into three categories: Scope 1 are the emissions that a company generates. Scope 2 includes emissions that it causes indirectly, for example through the use of electricity. Scope 3 includes emissions generated along the company’s value chain, including from suppliers and customers.

Companies state that there is no agreed methodology for calculating Scope 3 emissions and that providing this level of detail would be burdensome.

Disclosing second-hand emissions data from suppliers and partners could also expose companies to litigation from both third parties and investors if the information proves misleading, they say.

“The biggest bone of contention is Scope 3 emissions. …the agency is asking companies about activities outside of the company’s control,” said Tom Quaadman of the US Chamber of Commerce, which is in talks with the SEC on the issue. “American companies can be sued for detailing these things.”

Some within the SEC understand companies’ concerns, and staffers are investigating whether Scope 3 disclosures could fall under an existing legal safe harbor that protects companies’ forward-looking statements, or whether a new safe harbor could be created, they said the sources.

Steven Rothstein of investor advocacy group Ceres, which is pushing for Scope 3 disclosures, said SEC officials have been contacting them over the past few months for more feedback on Scope 3 issues, including whether a safe haven to be provided.

Another option to reduce companies’ legal exposure would be public disclosure of Scope 1, 2, and some Scope 3 data, while privately filing sensitive Scope 3 data about suppliers and partners with the SEC , according to the sources.

“The agency is trying to determine whether they are intended to be part of the company’s financial records or whether they can be provided or delivered separately,” said Tracey Lewis, climate policy adviser to Washington-based group Public Citizen, which has also discussed the matter with the SEC.

SECTOR DETAILS

Requiring some Scope 3 disclosures would see the United States go further than Europe and voluntary standards from the Task Force on Climate-Related Financial Disclosures.

This group, created by the G20 Financial Stability Board, proposes companies to disclose Scope 3 emissions where appropriate.

It’s unclear whether the two Republican commissioners of the SEC would support such a move, although Democrats have enough votes to pass the draft rule anyway. Hester Peirce, one of the two Republicans, has suggested that disclosure of emissions data falls within the domain of the Environmental Protection Agency.

A major challenge for the SEC, experts say, is identifying which Scope 3 metrics help investors assess a company’s financial prospects and ensuring the rule is flexible enough to generate specific rather than general information.

While disclosing emissions may be important to high-carbon sectors like oil, gas and automakers, they may be less relevant to others, and the SEC is considering how much detail companies should provide by sector, the people said.

Some companies in carbon-intensive sectors, including oil major ExxonMobil (NYSE:) Corp https://www.reuters.com/article/us-exxon-mobil-carbon/exxon-mobil-under-pressure-on-climate-aims -to-cut-emissions-intensity-by-2025-idUSKBN28O1TL, have recently started reporting Scope 3 emissions under pressure from investors and climate activists.

The SEC is also considering how much data financial institutions that finance high-carbon industries should disclose, the people said. Many banks have committed to ultimately reducing their emissions to zero, which could have a significant impact on their operations, they noted.

Rothstein said the SEC also asked him if it should include Scope 3 for large, high-volume companies and then roll it out for medium-sized and small companies a year or two later.

“Scope 3 disclosure of any kind is critical, and we hope the SEC will be bold,” he added. “The climate crisis requires no less.”

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