In March, the Securities and Exchange Commission adopted a final rule to enhance and standardize climate-related disclosures by public companies. The SEC says the rule responds to investor demands for information on the financial effects of climate-related risks and how a registrant manages those risks while balancing the associated costs of the rules. The final rule requires large filers and large accelerated filers to disclose material information about Scopes 1-2 emissions. Scope 3 was not included in the final rule. On April 5th, the SEC announced they will pause the implementation of the rule until litigation by a range of opponents including companies, Republican-led states, and the Sierra Club, is resolved.
Many companies already report and collect climate-related risk data, their GHG footprints, and their GHG reduction goals and other climate efforts, either for voluntary sustainability programs, or for emerging regulation in jurisdictions including California, the EU, UK, and others. In fact, a Duke survey found that many large corporate respondents did not anticipate high marginal costs for complying with a new SEC climate rule, because they already find and disclose the information that will be required under the rule, either for voluntary initiatives or regulations in other jurisdictions.
The exclusion of Scope 3 in disclosures by the SEC underscores many of the challenges with current Scope 3 reporting and guidance. As emissions disclosure becomes mandatory, companies need to meet a higher standard to verify the information they disclose – a task that is difficult under the current Scope 3 accounting norms. Scope 3 emissions are often the majority of a companies’ footprint, and a range of stakeholders, including investors, urge companies to account for and take action to reduce Scope 3.
Despite litigation delays, most companies are likely facing demands to report climate-related information in other jurisdictions. As such, they should be prepared to collect the necessary information sought by emerging disclosure requirements and ensure that they meet steps for data assurance and validation.
