Focus: Companies worry U.S. SEC climate rule may require broad emissions disclosures
19/01/2022 20:52
(Adds comment from climate taskforce)
By Katanga Johnson
WASHINGTON, Jan 19 (Reuters) - As the U.S. securities
regulator wraps up a draft of a landmark new climate change
rule, environmental campaigners and activist investors want it
to require companies to disclose not only their own greenhouse
gas emissions but those generated by their suppliers and other
partners.
Corporate groups, meanwhile, are pushing for a narrower rule
that will make it easier and less expensive to gather and report
emissions data, and which will protect them from being sued over
potential mistakes.
Last year, the Securities and Exchange Commission (SEC)
started working https://www.reuters.com/business/sustainable-business/sec-considers-disclosure-mandate-range-climate-metrics-2021-06-23
on a new rule requiring U.S.-listed companies to provide
investors with detailed disclosures on how climate change could
affect their business.
The rule is part of a broader effort https://www.reuters.com/business/cop/key-recommendations-us-treasurys-financial-climate-risk-report-2021-10-21
by Democratic President Joe Biden's administration to address
climate change challenges and cut greenhouse gas emissions
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-u-s-leadership-on-world-stage-at-u-n-climate-conference-cop26
that will require every federal agency to do its part.
Progressives and climate campaigners want the SEC to deliver
a game-changing rule that will reveal all the emissions for
which a company is responsible, while many investors https://www.reuters.com/business/blackrock-warns-heavy-polluters-over-emissions-data-before-shareholder-meetings-2021-02-17
say they need such data to fully assess companies' exposure to
climate change and related policy measures.
Initially, the SEC under Chair Gary Gensler said it hoped to
publish a draft by October 2021. Last month, Gensler said it was
aiming to issue a draft in early 2022.
Staff are still working on the rule, said two people
familiar with the matter, and the SEC's commissioners, who must
vote to propose regulations, have not yet seen a draft.
A spokesperson for the SEC declined to comment.
A major issue staff are struggling with is whether and how
some or all companies should disclose the broadest measure of
greenhouse-gas emissions, also known as "Scope 3" emissions,
according to the sources and company and investor advocates.
Corporate greenhouse-gas emissions fall into three buckets:
Scope 1 are emissions a company generates. Scope 2 includes
emissions it creates indirectly, for example by using
electricity. Scope 3 includes emissions generated up and down
the company value chain, including by suppliers and customers.
Companies say there is no agreed methodology for calculating
Scope 3 emissions and providing that level of detail would be
burdensome.
Disclosing second-hand emissions data from suppliers and
partners could also expose companies to litigation by both the
third parties and investors, if the information transpires to be
misleading, they say.
"The biggest point of contention is with Scope 3 emissions.
... the agency is asking companies about activities that are
outside of the firm’s control," said Tom Quaadman of the U.S.
Chamber of Commerce which is in discussions with the SEC on the
issue. "American companies can get sued on detailing those
things."
Some inside the SEC are sympathetic to companies' concerns
and staff are exploring 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, the sources said.
Steven Rothstein of investor advocacy group Ceres, which is
pushing for Scope 3 disclosures, said SEC staff contacted them
in recent months seeking more feedback on Scope 3 issues,
including whether to provide a safe harbor.
Another option on the table to reduce companies' legal
exposure would see them publicly disclose Scope 1, 2 and some
Scope 3 data, while filing sensitive Scope 3 data on suppliers
and partners to the SEC privately, according the sources.
"The agency is trying to determine whether they should be
part of the company's financial filing or can be provided or
furnished separately," said Tracey Lewis, policy counsel on
climate for Washington group Public Citizen who has also
discussed the matter with the SEC.
SECTOR DISCLOSURES
Mandating 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.
That group, created by the G20's Financial Stability Board,
proposes companies disclose Scope 3 emissions if material and
appropriate.
A spokeswoman for the taskforce said it "strongly
encourages" all organizations to disclose Scope 3 emissions.
It is unclear if the SEC's two Republican commissioners
would support such a move, although Democrats have enough votes
to push the draft rule through regardless. Hester Peirce, one of
the two Republicans, has suggested https://www.sec.gov/news/speech/peirce-chocolate-covered-cicadas-072021
emissions data disclosures are the domain of the Environmental
Protection Agency.
One big challenge for the SEC, say experts, is identifying
which Scope 3 metrics help investors gauge a company's financial
prospects, and ensuring the rule is flexible enough to generate
specific, rather than generic information.
While emissions disclosures may be important for
carbon-intensive sectors like oil, gas and automakers, they may
be less relevant for 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 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 begun reporting Scope 3 emissions, amid pressure
from investors and climate campaigners.
The SEC is also mulling how much data financial
institutions, which finance carbon-intensive industries, should
disclose, the people said. Many banks have pledged to reduce
their emissions ultimately to zero, which could have major
implications for their operations, they noted.
Rothstein said the SEC had also asked him whether it should
include Scope 3 for large, high-revenue companies, then phase in
medium and small-sized companies a year or two later.
"Scope 3 disclosure of any kind is critical and we hope that
the SEC will be bold," he added. "The climate crisis requires no
less."
(Reporting by Katanga Johnson in Washington
Editing by Michelle Price and David Gregorio)
((Katanga.Johnson@tr.com; 202-579-4165; Reuters Messaging:
@kjspeakstruth))