SEC Plans to Force Public Companies to Disclose Greenhouse Gas Emissions Public Comment DEADLINE: June 17, 2022

March 17, 2022

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by Douglas MacMillan and Maxine Joselow (Washington Post) From Coca-Cola to Tesla, companies report emissions in widely different ways. A new federal rule is expected to standardize climate disclosures, putting the U.S. on closer footing with other countries. -- The Securities and Exchange Commission plans to require all publicly traded companies to disclose their greenhouse gas emissions and the climate risks their businesses face, part of the Biden administration’s broader push to force the private sector to reckon with the dangers of a warming world.

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The move could mark the most sweeping overhaul of corporate disclosure rules in more than a decade, and could put the United States on closer footing with other countries set to begin mandated emissions reporting over the next three years.

The new rule could transform the SEC into one of the country’s leading enforcers of climate-related disclosures, a role in which some critics say the Wall Street regulator lacks expertise and authority.

Shareholders of public companies are increasingly demanding more information about the risks that climate change could pose to their investments, arguing that mounting climate disasters and environmental regulations could limit the growth of businesses that do not prepare for them.

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“These disclosure rules are critical to ensuring that Wall Street cannot continue to get away with making investments that exacerbate the climate crisis,” Sen. Elizabeth Warren (D-Mass.) said in an emailed statement. “The American people and financial investors have a right to know the risks of these investments, and it’s taken far too long for the SEC to take action.”

While many firms already voluntarily share some details about their environmental impact, there are sometimes wide discrepancies in how companies calculate carbon emissions, said Danielle Fugere, president and chief counsel of shareholder advocacy group As You Sow.

For example, Coca-Cola counts up total emissions generated by its facilities, suppliers and customers in making and consuming its products. Tesla, which touts its zero-emission electric vehicles, shares only the emissions generated in creating a single line of cars, the Model 3, explaining in its most recent impact report that this is “a good proxy for understanding the emissions impact of our vehicle business.”

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The SEC’s proposed rule will go through a public comment period before a final rule is voted on by the agency’s four commissioners — three Democrats and one Republican. The regulation is likely to face legal challenges on the basis of whether the commission has the authority to tackle climate issues, said Kathleen Sgamma, head of the oil and gas industry group Western Energy Alliance.

A year ago, West Virginia Attorney General Patrick Morrisey threatened to sue the agency if it forced companies to disclose environmental data, arguing in a letter to the SEC that its proposal would not hold up to the “strict scrutiny test,” which says laws and regulations must meet a “compelling government interest” to be constitutional.

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The SEC dipped its toe into climate policy in 2010, when it formally issued guidance that companies should share information about climate change when it poses a “material” risk to their business. Shareholders at public companies complained that firms interpreted this guidance in widely different ways, with some publishing lengthy sustainability reports outlining their climate impacts and others ignoring the topic completely.

When Gensler was sworn in as SEC chairman last year, he signaled that he wanted the agency to bring more “consistency and comparability” to climate disclosures. During a request for public comments on a possible climate rule, Gensler said, the agency received more than 500 comments, of which three-quarters were in favor of some type of mandatory climate disclosure.

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Britain and Japan plan to require certain large businesses to disclose their emissions starting in April, while the European Union is set to force all large companies listed on the European stock exchange to report their emissions beginning in 2024.

Some American business groups have pushed for the SEC rule to exclude “scope 3” emissions, those generated by suppliers and customers, such as drivers filling up their cars with gasoline. However, climate activists argue that the rule will lack teeth if it omits scope 3 emissions, which make up roughly 85 percent of ExxonMobil’s carbon footprint, according to Carbon Tracker Initiative, an environmental group that advises institutional investors. READ MORE

SEC to consider climate disclosure rules for US companies (Green Biz)

READY TO DISCLOSE: The Securities and Exchange Commission will outline its long-awaited draft proposal for publicly traded companies to disclose their risks to climate change (Politico's Morning Energy)

STANDARD CLIMATE DISCLOSURE: (Politico's Morning Energy)

‘Watershed moment.’ SEC proposed landmark climate rules (E&E News)

SEC Takes Important Step to Address Corporate Greenwashing (Sierra Club)

SEC Proposes Landmark Rule Requiring Companies to Tell Investors of Risks Posed by Climate Change (Inside Climate News)

Banks promised climate action. Where is it? Not one of the top 30 financial institutions is following through on its climate pledge, a new report finds. (Grist)

Banks undermine their 'net zero' pledges through lobbying - report (Reuters)

American Companies Can’t Sugarcoat Their Carbon Pollution Anymore: Three ways to think about the SEC’s new climate rule (The Atlantic)

Comments to the Securities Exchange Commision, Division of Corporation Finance (“SEC”) regarding a notice for “Public Input Welcomed on Climate Change Disclosures.” (Carbon 180)

Here's what oil companies stand to lose — and gain — under the SEC’s new climate rule (Houston Chronicle)

SEC Extends Comment Period for Proposed Rules on Climate-Related Disclosures, Reopens Comment Periods for Proposed Rules Regarding Private Fund Advisers and Regulation ATS (Securities and Exchange Commission)

EU Companies Get ESG Rules Aimed at Addressing Climate Risks (Bloomberg)

Excerpt from Green Biz: Largely in response to investors clamoring for more information about climate risks, as well as pressure from green groups that believe disclosure will drive climate-conscious investing, SEC Chair Gary Gensler announced in 2021 that the commission would use its statutory authority to require climate-related disclosures.

The SEC plans to consider proposals for climate-risk disclosure rules at its March 21 meeting.

Today we announced that @SECGov will meet publicly on March 21 to consider staff proposals to mandate climate-risk disclosures by public companies.

Companies and investors alike would benefit from clear rules of the road. Here’s why: pic.twitter.com/li5osqvJkG

— Gary Gensler (@GaryGensler) March 10, 2022

As law scholars, we work on legal issues involving businesses and regulation. Here’s what you need to know about climate disclosures and some of the challenges the SEC faces in adopting them.

What investors want to know

Investor pressure for better information about climate impacts comes from two directions.

First, some investors want to avoid companies that will be affected by climate change.

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Second, many investors are interested in ESG investing, which involves assessing companies’ commitments to environmental, social and governance factors.

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Rule benders and the effectiveness of disclosure

Research on the broader use of mandated disclosure, such as for home mortgage lending and consumer product labeling, shows that crafting effective disclosure regulations is difficult.

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Expect court challenges

One challenge the SEC has grappled with is whether it has statutory authority to require companies to disclose their "Scope 3" emissions. READ MORE

Excerpt from Politico's Morning Energy: STANDARD CLIMATE DISCLOSURE: The SEC voted Monday to advance a new rule standardizing how companies disclose their climate risks, from vulnerabilities to extreme weather to supply chain contingency plans as well as progress on their emissions reductions goals.

On a 3-1 vote, the SEC issued the proposed regulation and will now put it up for public comment. It largely follows guidelines already used by the private sector, POLITICO’s Lorraine Woellert and Zack Colman report, including emissions and reductions targets. But having it all standardized under the SEC offers uniformity and legal accountability that private investors and business groups have long requested.

“The new climate disclosure rule is truly a watershed moment in responding to investor demand for accurate climate disclosure,” said Danielle Fugere, president and chief counsel of As You Sow, a corporate responsibility nonprofit. “Clear and standardized reporting of greenhouse gas emissions is the bedrock of sound investor decision-making.”

But not everyone is so keen. Frank Macchiarola, a senior vice president at the American Petroleum Institute, contended that the U.S. oil and gas industry already reports its sustainability efforts and that the SEC proposal would “require non-material disclosures and create confusion for investors and capital markets. As the Commission pursues a final rule, we encourage them to collaborate with our industry and build on private-sector efforts that are already underway to improve consistency and comparability of climate-related reporting.” READ MORE

Excerpt from Inside Climate News: Publicly traded companies would also have to report greenhouse gas emissions from their business operations and the energy they consume. -- Public companies will have to report their greenhouse gas emissions and inform investors about the dangers that climate change poses to their businesses under a highly anticipated proposal unveiled Monday by the Securities and Exchange Commission.

“This is a watershed moment for investors and capital markets,” said Commissioner Allison Herren Lee, one of three Democrats on the four-member commission who voted to support the draft rule. “The science is clear and alarming and the links to capital markets are clear and evident.”

When finalized after a comment period, the rule would require publicly traded companies to report on the risks they face from extreme weather, including storms or drought, that could damage their businesses. Last year alone, weather-related disasters caused $145 billion in damage, according to NOAA, and that figure is projected to climb as climate change stokes more severe events.

Companies’ filings would also have to convey “transition risks”—including those that companies face as consumers and policies push them toward cleaner energy sources, potentially leaving their fossil fuel assets “stranded.”

If the rule is finalized, companies will have to disclose the short-, medium- and long-term impacts of climate change, as well as any measures they intend to take to mitigate climate effects, such as placing an internal price on carbon, or any targets they’ve set to reduce their greenhouse gas emissions, including whether they plan to use carbon offsets.

Companies will also have to report their greenhouse gas emissions, including those from their business operations and the energy they consume.

Companies can decide whether to report Scope 3 emissions—those generated in a company’s supply chain or through use of their goods—if they determine the information is “material” to investors or if they’ve set targets to reduce those emissions. In many cases, Scope 3 emissions represent the bulk of a company’s greenhouse gasses. READ MORE

Excerpt from Securities and Exchange Commission: The Securities and Exchange Commission today announced that it has extended the public comment period on the proposed rulemaking to enhance and standardize climate-related disclosures for investors until June 17, 2022. The SEC also announced that it will reopen the comment periods on the proposed rulemaking to enhance private fund investor protection and on the proposed rulemaking to include significant Treasury markets platforms within Regulation ATS for 30 days.

“Today, the Commission acted to provide the public with additional time to comment on three proposed rulemakings that have drawn significant interest from a wide breadth of investors, issuers, market participants, and other stakeholders," said SEC Chair Gary Gensler. "The SEC benefits greatly from hearing from the public on proposed regulatory changes. Commenters with diverse views have noted that they would benefit from additional time to review these three proposals, and I'm pleased that the public will have additional time to provide thoughtful feedback."

The public comment period for the proposed rulemaking "The Enhancement and Standardization of Climate-Related Disclosures for Investors," Release Nos. 33-11042, 34-94478 (March 21, 2022) will now end on June 17, 2022. The scope and comment process for this release remains as stated in the original Federal Register notice of April 11, 2022.

The public comment periods for the proposed rulemakings "Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews," Release Nos. IA-5955 (Feb. 9, 2022) and "Amendments Regarding the Definition of 'Exchange' and Alternative Trading Systems (ATSs) That Trade U.S. Treasury and Agency Securities, National Market System (NMS) Stocks, and Other Securities," Release No. 34-94062 (Jan. 26, 2022) will be reopened for 30 days following publication of the reopening release in the Federal Register. The scope and comment process for both releases will remain as stated in the original Federal Register notices of March 24, 2022, and March 18, 2022. READ MORE