Some corporations must improve their carbon footprint reporting after the U.S. Securities and Exchange Commission approved a climate change disclosure rule on Wednesday.
The regulation, under consideration for two years, will require certain public companies to disclose information to investors about their direct greenhouse gas emissions and those created by the energy they consume.
“Our federal securities laws lay out a basic bargain. Investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called ‘complete and truthful disclosure,’” said SEC Chair Gary Gensler, a Democrat. “The rules will provide investors with consistent, comparable and decision-useful information.”
The SEC made two significant reversals that will frustrate environmentalists and dealt a gut punch to climate-conscious environmental, social and governance (ESG) investing. Also notable were wins to businesses and others opposed to disclosures related to climate change. Mr. Gensler said the changes were made in direct response to fierce backlash from relevant stakeholders, including more than 24,000 public comments.
The Democratic-led commission dropped Scope 3 emissions reporting that would have required the disclosure of indirect emissions from companies’ supply chains and customers, such as the footprints of farmers seeking banking loans or the gasoline used to transport products.
Critics warned that the disclosure rule would be overly costly and burdensome for corporations and could negatively impact business partners of publicly traded companies, including the agriculture industry.
“We applaud the SEC’s recognition of the lawlessness of their original proposal and their attempt to rein it in, though they still have a long way to go,” said Justin Bis, director of the SEC watchdog group Financial Fairness Alliance. “The current effort continues to prioritize the environmental special interest agenda over hard realities such as insurance loss trends, persistent inflation, and the predictable job losses flowing from this scheme.”
In addition, the SEC altered the reporting of direct emissions and those from energy usage, known as Scope 1 and 2 emissions, to be at the companies’ discretion. Only those that determine such information is vital enough to be deemed “material” for investors must report the emissions. Smaller companies will be exempt.
The SEC estimates that 2,800 U.S.-based companies and more than 500 foreign-based companies doing business in the U.S. must make the disclosures.
The rule passed the five-member commission on a 3-2 vote along party lines, with its three Democratic commissioners voting in favor and its two Republican commissioners against.
Many companies voluntarily provide climate-related data, but the SEC argued that the new requirements would offer investors greater transparency about long-term climate-related financial risks. It estimates the implementation cost to companies at $500,000.
The rule could spark legal challenges against the SEC over allegations of overstepping its authority as the nation’s top financial regulator, though some of the Democratic commissioners and environmental groups said it fell short.
“We are disappointed that corporate special interest groups like the Chamber of Commerce, who represent the very large, public companies whose climate-related financial risk disclosures are most needed, worked to significantly weaken the previously proposed comprehensive greenhouse gas emissions reporting,” said David Shadburn, senior government affairs advocate at the League of Conservation Voters.
Correction: A previous version of this article misstated the party affiliation of commissioners.
• Ramsey Touchberry can be reached at rtouchberry@washingtontimes.com.
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