The SEC suggests companies disclose a combination of climate risk and emissions data

WASHINGTON (Reuters) – The US Securities and Exchange Commission proposed on Monday requiring listed US companies to disclose a range of climate-related risks and greenhouse gas emissions, as part of President Joe Biden’s bid to join global efforts to avert climate-related disasters. .

The US Securities and Exchange Commission (SEC) has revealed a long-awaited draft rule under which companies will disclose direct and indirect greenhouse gas emissions, known as Scope 1 and Scope 2 emissions. It will also require companies to disclose emissions from their suppliers and partners, known As band 3 emissions, if substantial.

SEC President Gary Gensler said the agency has been responding to investors’ demand for consistent information about how climate change will affect the financial performance of the companies in which they invest. But prominent Republicans have accused the regulator of overstepping its legal authority, and the American Chamber of Commerce has vowed to fight parts of the base.

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The draft proposal, which is subject to public comment and is likely to be finalized later this year, should help investors get the information they’re looking for as the reporting burden increases for US companies.

It will also require companies to disclose the “actual or potential material impacts” that climate-related risks will have on their business, strategy and outlook, including material risks as well as potential new regulations such as a carbon tax.

Companies that have set emissions targets or have announced other plans to transition away from fossil fuels must provide details of how and when they expect to do so. Read more

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“Companies and investors alike will benefit from clear rules of the road,” Gensler said.

Senator Patrick Tomei, the top Republican member of the Senate Banking Committee, criticized the rule, saying it “extends beyond the SEC’s mission and expertise.”

Progressive and activist investors have pushed the Securities and Exchange Commission to demand disclosure of Scope 3 emissions to hold companies accountable for all the carbon dioxide and methane they help generate. Companies have been pushing for a narrower rule that would not increase compliance costs too sharply.

“This proposal will be a light in the way of addressing President Biden’s priority in disclosing climate risks to investors and all areas of our society,” said Tracy Lewis, policy advisor at Washington-based advocacy group Public Citizen. “There will be a lot of critics,” she added.

The Securities and Exchange Commission said scope 3 requirements will include cuts based on company size, and that all emissions disclosures will take place in phases between 2023 and 2026.

It wasn’t immediately clear how many companies would have to disclose Scope 3, as they largely have discretion to decide what would be considered “material.”

The Chamber of Commerce, the country’s largest business lobby, called the proposal too prescriptive and complained that it would force companies to disclose largely unimportant information at the expense of more meaningful data.

“The Supreme Court has been clear that any disclosures required by securities laws must meet the materiality test, and we will defend provisions of this proposal that deviate from this standard,” said Tom Quadman, group executive vice president. a permit.

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The Investment Company Institute, which represents global investors, welcomed the rule broadly.

“The enhanced disclosure called for by the proposal will provide investors with comparable, consistent, quality and quantitative information.”

Legal Challenges

Six sources told Reuters the SEC spent the past week backing the draft in the face of potential legal challenges.

The company groups argued that there was no agreed-upon methodology for calculating Scope 3 emissions, saying it could lead to double counting, and that providing too many details would be cumbersome and expose companies to litigation if third-party data ends up being wrong.

The Securities and Exchange Commission has attempted to address this concern by proposing that Scope 3 disclosures would be protected by a legal safe harbor that already exists for corporate forward-looking statements.

Any legal challenges to the rule would likely argue that the SEC lacks the authority to request scope 3 emissions data, something the agency’s sole Republican Commissioner Hester Pierce said Monday in a vote against the proposal.

Some experts said the SEC’s authority in this area was clear, noting that investors poured more than $649 billion into environmental, social and governance-focused funds around the world last year, and demanded better data.

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(Reporting on Katanga Johnson in Washington; Editing by Michael Price, David Gregorio and Matthew Lewis

Our criteria: Thomson Reuters Trust Principles.

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