SEC may remove scope 3 requirements from climate disclosure rules

February 29, 2024|Written by Moriah Costa|Securities & Exchange Commission

The US Securities and Exchange Commission (SEC) could remove scope 3 requirements in its anticipated corporate climate disclosure rules, making its rules weaker than regulations in other jurisdictions, according to Reuters.

The news agency reported that the scope 3 requirement was dropped from the rules, which are expected to be finalised in the coming months. Scope 3 was included in the original draft when it came out in March 2022.

Scope 3 emissions account for greenhouse gases released through the supply chain of a company and its consumers and account for 70% of emissions, according to some estimates.

Climate advocates were not surprised by the news, although said they would be disappointed if the SEC were to press ahead.

“There’s a big debate in the US about some of these issues, and we live in, unfortunately, a very hyper-partisan environment right now,” said Steven Rothstein, managing director at climate nonprofit Ceres.

The move would put the SEC at odds with other regulations that do require scope 3 emissions and potentially create confusion for companies, said Sadie Frank, a climate policy consultant.

“The SEC dropping scope 3 is out of step with the rest of the world, leading to confusion and uneven reporting requirements that add burdens to companies and investors,” she said.

The EU’s corporate sustainable reporting directive requires disclosing scopes 1,2, and 3, as does a recent law passed by the state of California. This means that many large multinationals may still need to disclose their scope 3 emissions even if it does not feature in the final SEC ruling.

While some industry groups strongly oppose including scope 3, an analysis of the 16,000 comments the SEC received found that over 95% of commenters support their inclusion.

Rothstein said investors clearly want as much information as possible to make informed decisions.

“Climate is a growing risk, it’s also a growing opportunity, and they need to understand more about that from an investment perspective,” he said.

Frank said the removal of scope 3 would likely be to combat against potential litigation. Many industry groups have said they would sue the SEC over the disclosure rule. The US Chamber of Commerce and Farm Bureau is already suing California over its climate disclosure rules.

“While in the near term, many companies will still have to disclose scope 3 information, over the longer term a rollback threatens the overall leadership of the US on climate and ultimately raises the potential for climate risk-aware investors to pull capital out of US markets,” she said.

This page was last updated February 29, 2024

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