SEC Chair Highlights Investor Backing for Scope 3 Emissions Reporting

The U.S. Securities and Exchange Commission (SEC) is receiving strong investor support for its proposal to include Scope 3 value chain emissions reporting in the final climate disclosure rule. These remarks came from SEC Chair Gary Gensler during a forum discussion at the U.S. Chamber of Commerce.

Scope 3 emissions reporting has become a point of contention, with companies and smaller enterprises expressing concerns about the costs and disruptions associated with compliance. Despite these challenges, the SEC's proposed rule is designed to address investors' needs by providing essential information for evaluating company risk.

The SEC introduced its proposed climate disclosure rules in March 2022, seeking to require U.S. companies to disclose climate risks, mitigation plans, and operational climate footprint. It would also encompass emissions originating throughout their value chains.

Chair Gensler emphasized that the SEC's primary objective is to assist investors in making informed decisions. He noted that the climate disclosure rules aim to provide investors with consistent and comparable data, given that companies are already disclosing climate-related information, albeit with variations.

Gensler highlighted the high levels of existing climate risk disclosures among major companies, with 81% of those listed in the Russell 1000 making climate risk disclosures in 2021. However, the majority focused on Scope 1 and Scope 2 emissions, with less attention paid to Scope 3 emissions.

He acknowledged the vast amount of feedback the SEC has received, including approximately 16,000 comments from companies, investors, and other stakeholders. Scope 3 emissions reporting has been a prominent topic of discussion, with significant support for Scope 1 and 2 emissions reporting and more mixed views on Scope 3.

To address issuer concerns and the relatively underdeveloped nature of Scope 3, the SEC is adopting a tiered approach to Scope 3 reporting. Companies will only be required to disclose Scope 3 emissions if they determine it to be material or if they have made public commitments regarding Scope 3 emissions.

In addition to issuer concerns, smaller enterprises and agricultural entities have expressed worries about being compelled to provide emissions reporting to larger-company customers, despite not being under the SEC's jurisdiction. Gensler acknowledged these concerns, agreeing that non-public companies should not be unintentionally regulated.

Despite the challenges posed by Scope 3 emissions reporting, Gensler emphasized its importance to investors for managing transition risk, understanding how a company's supply chain emissions could impact future business operations.

He also mentioned that many U.S. public companies may be required to provide Scope 3 disclosures under other regulatory reporting regimes, such as California's recent law and the EU's Corporate Sustainability Reporting Directive. These requirements will contribute to the economic baseline for the SEC's climate reporting rule.

However, Gensler did not provide a specific timeline for the finalization of the climate-related reporting rule, stating that the publication date in the Federal Register was yet to be determined.