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The Securities and Exchange Commission this week approved new requirements that public companies disclose their greenhouse gas emissions, but without a key provision that has been opposed by business groups.
The new rule, finalized by a 3-2 vote, would require companies to report on Scope 1 and Scope 2 emissions, which come from sources a company owns directly and indirectly from the energy source it purchases and uses.
The original proposal included the obligation to report Scope 3 emissions, which includes emissions produced upstream and downstream of the supply chain; companies were deeply opposed to this requirement, arguing that it would be too expensive, complex and burdensome.
Environmental groups wanted to include Scope 3 emissions, which account for about 70% of the greenhouse gases produced by many companies.
The Clean Air Task Force, Sierra Club and Public Citizen are among the climate groups that have raised concerns about the omission of Scope 3.
The most important climate information investors say they need is data on greenhouse gas emissions, but “only a portion of that risk” is disclosed in the new rule, the former acting SEC chairman told Bloomberg Allison Herren Lee, comparing omission to the exposed part of an iceberg when a much greater danger lurks beneath the water.
The new rule will also require companies to report climate-related risks, such as floods and wildfires, that could affect profits, and to disclose measures they take to mitigate or adapt to climate risks, the SEC said.
Companies with at least $700 million in outstanding shares must disclose material climate-related risks starting in fiscal 2025 and material Scope 1 and Scope 2 emissions starting in fiscal 2026; The climate risk disclosures will take effect one year later for companies with at least $75 million in shares outstanding and must begin disclosing material emissions data in fiscal 2028.
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