The historic regulation mandating businesses to disclose information on their greenhouse gas emissions and climate risks is scheduled for a vote by the U.S. Securities and Exchange Commission on Wednesday.
In the two years since it was first suggested, there has been a lot of interest in the final rule, which will impact publicly traded corporations operating in the United States, ranging from majors in the oil and gas industry to retailers and tech giants. More than 16,000 companies and others have commented on the proposal.
In their financial accounts, firms would have to disclose substantially more information about the risks that climate change poses to their operations and about their contributions to the issue, according to a draft of the rule.
Laptops 1000This covers anticipated expenses associated with shifting away from fossil fuels as well as dangers associated with the actual effects of storms, droughts, and rising temperatures exacerbated by global warming.
According to the agency, the SEC’s rule would standardize the disclosure of this kind of information, which is already reported by many businesses.
Steven Rothstein, managing director of Ceres, a charity that collaborates with businesses and investors to address environmental concerns, stated,
“This will be an important step in that direction. You can’t manage a problem if you can’t measure a problem.”
Commissioners of the SEC consider the proposal amid rumors that the draft rule has been softened to remove the requirement for businesses to disclose indirect emissions, or “Scope 3.”
These are emissions that are produced up and down a supply chain, such as in the process of making the textiles used to make garments for retailers, or they are the result of a consumer using a product, like gasoline. They are not produced by the company or its activities.
Before the meeting on Wednesday, the SEC declined to comment on the stories. Last year, SEC Chairman Gary Gensler admitted to Congress in Washington that the final rule was being delayed by the fight over Scope 3 emissions.
According to Asaf Bernstein, a finance professor at the University of Colorado, Boulder, who advised the SEC on the climate disclosure rule academically, “there was an enormous amount of feedback on Scope 3.”
Laptops 1000Bernstein stated he was unsure if Scope 3 was included in the final regulation that would be put to a vote on Wednesday.
Businesses, trade associations, and others had vehemently objected to the rule’s requirement of Scope 3 emissions. They claimed that it would be challenging to quantify these emissions, particularly when attempting to obtain data from private businesses or foreign suppliers.
Environmental organizations and other proponents of greater transparency, however, countered that many businesses already collect this data and that Scope 3 emissions typically make up the majority of a company’s carbon footprint.
“We are witnessing a real-time trend where companies are finding it simpler to report their emissions and obtain reported emissions from suppliers,” stated Kristina Wyatt, chief sustainability officer of Persefoni, a carbon-accounting software provider and a former senior attorney for the SEC handling environmental and climate-related matters.
Direct emissions are referred to as Scope 1 emissions, while indirect emissions, which result from the generation of energy that a corporation purchases to utilize in its activities, are referred to as Scope 2 emissions.
Legal challenges are almost a given for the SEC’s final rule. Several Republicans and business associations charged Democrat Gensler of going too far. The primary focus of their criticism has been on whether the SEC exceeded its authority in safeguarding investors from fraud and the financial integrity of security exchanges.
According to Gensler, the uniformity and comparability of the information that businesses are required to publish about their emissions depend on an SEC rule.
Laptops 1000Joe Biden appointed three of the five commissioners on the SEC, including Gensler. Former President Donald Trump appointed two of them.
The SEC rule follows the passage of a comparable law in California in October of last year, which mandates that public and private businesses with over $1 billion in annual revenue report all of their emissions, direct and indirect, including Scope 3.
According to Ceres, more than 5,300 businesses will have to declare their emissions under the California legislation. Broad disclosure regulations were also adopted by the European Union and are about to go into force.
Regardless of what the SEC rule contains, Wyatt said, such requirements will force businesses to disclose material information relating to climate change.
“The world has advanced and may have diminished the importance of the work done by the SEC,” Wyatt remarked.
