Business Groups Pushing Back Hard on SEC Emissions Reporting Proposal

WASHINGTON — Business groups and corporate lobbyists were among those pushing back hardest as the deadline elapsed Friday on a Securities and Exchange Commission proposal that would require companies for the first time to disclose their carbon emissions and climate change risks to investors.

In March, SEC commissioners voted 3-1 to release the proposal, which bears the wonky name of “The Enhancement and Standardization of Climate-Related Disclosures for Investors” for public comment, and since then, thousands of comments have been posted on the SEC’s website.

As outlined in the Federal Register, the proposal would force publicly listed companies to disclose their greenhouse gas emissions annually and have them verified by a third party.

The reports would have to include data on the emissions they release directly as well as emissions derived from energy that they purchase, known as scope 1 and scope 2 emissions.

Companies registered with the agency would also have to spell out updated strategies each year for how they plan to reduce these emissions and their timeframe for doing so.

But the most controversial provision of the SEC proposal involves what are known as scope 3 emissions, a broad measure that includes everything from the emissions associated with products companies buy to the business travel of their employees.

Under the SEC proposal, these would need to be disclosed only if they were deemed “material” to the companies’ climate targets. 

Unlike the other disclosures, scope 3 disclosures would not be subject to third-party verification.

Environmental groups applauded the proposal, but also raised concerns with the SEC’s scope 3 reporting provisions. 

“We are concerned that scope 3 emissions disclosures are essentially left up to [companies] to determine the materiality of these emissions,” said Ben Cushing, campaign manager for the Sierra Club’s Fossil-Free Finance campaign.

But for many in the business community, the proposal is a grave concern.

Joshua Bolten, CEO of the Business Roundtable, a nonprofit lobbyist association based in Washington, D.C., said his members, “who are industry leaders in climate change action and disclosure, have serious concerns with the SEC’s proposal.” 

In its actual submission to the SEC, Business Roundtable said, “Among other concerns, the proposal would require registrants to produce overwhelming amounts of information that would not be comparable, reliable or meaningful, much less material, for investors. 

“The proposal would also subject registrants to significant liability for disclosures that inherently involve a high degree of uncertainty,” the group said.

The group then goes on to tick off a number of other problems it finds inherent in the proposal, including the proposed scope 3 greenhouse gas emissions disclosure requirements, which it says “are overly burdensome and unlikely to result in comparable, investor-useful information,” that the proposal would require the reporting of massive amounts information that is not actually of any use to investors; and that the agency has “significantly understated” the ultimate compliance costs of the rules.

Similarly, the U.S. Chamber of Commerce has argued the “prescriptive approach taken by the SEC will limit companies’ ability to provide information that shareholders and stakeholders find meaningful while at the same time requiring that companies provide information in securities filings that are not material to investors.” 

“The Supreme Court has been clear that any required disclosures under securities laws must meet the test of materiality, and we will advocate against provisions of this proposal that deviate from that standard or are unnecessarily broad,” said Tom Quaadman, executive vice president for the U.S. Chamber’s Center for Capital Markets Competitiveness, in a statement just after the proposal was announced. 

“In 2019, the U.S. Chamber released [environmental, social, and corporate governance] reporting principles to help facilitate increased climate reporting to meet the needs of investors and illustrate the individual circumstances of industries and businesses,” Quaadman said.

“We are committed to working constructively with the SEC to develop clear and workable rules for climate disclosures that build from industry experience and provide meaningful information to investors.”

Because Democrats currently hold a majority on the SEC board, the proposed rule is widely expected to pass, despite the business community’s opposition.

Still, commenters like Paul Mahoney and Julia Mahoney of the University of Virginia School of Law, believe the new disclosure mandates would, if put into force, “represent a substantial change in the commission’s approach to its stated mission of protecting ‘Main Street investors’ and ‘maintaining fair, orderly, and efficient markets.’”

That argument could be a prelude to a rash of court challenges by those who oppose the SEC proposal.

“Accordingly, the SEC should decline to act absent a showing that ESG disclosures will serve the financial interests of the households for whom institutional investors are fiduciaries and whose retirement and other savings they manage,” the professors write.

This is not to suggest the entire business community is against the proposed changes.

In a joint comment, Alphabet, Amazon.com, Autodesk, eBay, Facebook, Intel Corporation, and Salesforce.com said they support “regular and consistent reporting” of climate-related matters “to complement the significant actions we each are taking to address climate change, and we each already voluntarily report our scope 1, 2, and 3 greenhouse gas emissions footprints. 

“We believe that it is critical to regularly measure and report on our progress towards our climate commitments and to share updates with investors and other stakeholders. … We are encouraged by the commission’s open and transparent process in proactively seeking early input from a broad community of participants in the capital markets. Investors need clear, comprehensive, high-quality information on the impacts of climate change for market participants. 

“Climate change is an urgent global challenge that requires broad action, and the SEC has sought appropriate input on how companies can disclose climate-related impacts and convey the meaningful steps they are taking towards reducing greenhouse gas emissions,” the tech companies said.

Microsoft also said it supports regular reporting of all emissions from large companies, and a “uniform framework and taxonomy” for the same.

“At the same time, the commission’s rules should be principles-based and sufficiently flexible to adapt to a range of variables, including market and scientific developments, the size, scope, industry, and maturity of companies, and evolving investor priorities,” the company said.

The proposed rules are expected to be adopted by the end of the year or very early next year, and include a phase-in period to help companies come into compliance.

For instance, if the rules are adopted by the end of this year, the SEC said that large companies would need to disclose scope 1 and 2 emissions in 2024 and scope 3 emissions in 2025.

Dan can be reached at [email protected] and at https://twitter.com/DanMcCue.