SEC eyes new rules to force corporate climate disclosures
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The Securities and Exchange Commission will vote to approve final rules Wednesday that will force larger public companies to disclose certain emissions and climate-related risks to their business.
Why it matters: The heavily-lobbied rule — if it survives litigation — will give investors and the public a much closer look at companies' contributions to, and impact on, climate change.
How it works: It will require that so-called "large accelerated filers" and "accelerated filers" file securities disclosures of emissions from their direct operations (Scope 1), and the energy that powers them (Scope2).
- They must also offer analysis of physical risks to their business from climate change, like extreme weather, and "transition risks" like climate policies and changing consumer preferences.
Yes, but: The SEC reportedly dropped plans to force tallying and reporting of emissions from firms' supply chains and end-uses of their products.
- These "Scope 3" emissions are often the largest category — think, for instance, of vehicles burning gasoline that oil companies produce.
- The final rules also exempt smaller reporting companies (SRGs) and emerging growth companies (EGCs) from some of the disclosure requirements like greenhouse gas emissions.
- Compliance for some companies will kick off in 2025.
Between the lines: Pushback on Scope 3 disclosures via public comments came from companies and some investors, a senior SEC official told journalists in a briefing.
- In addition to compliance costs, concerns emerged over whether current Scope 3 data gathering abilities can be sufficiently reliable and consistent.
The big picture: The rules are at the center of intense political and lobbying battles over financial regulators' foray into climate.
- SEC Chair Gary Gensler — along with numerous Democrats and climate advocacy groups — say it will provide investors needed and more standardized information to assess risk.
The other side: Many Republicans and industry groups blast what they perceive as SEC mission creep, that would impose costly and burdensome new requirements.
- Some also allege a bank shot attempt to steer capital away from fossil fuels.
What's next: It's certain to end up in court, with attorneys general from red states threatening as much after the draft landed in 2022.
- One possible vulnerability: claims it runs afoul of a 2022 Supreme Court ruling that reinforced the "major questions" doctrine that big regulations require clear authorization by Congress.
- Litigation from the left, especially over the scaling back of the rules, is also possible.
The bottom line: Today's move ended one phase of a ferocious battle over disclosure, but now it shifts to the courtroom.
