SEC to propose new climate rule amid controversy over scope 3 emissions

Posted on March 3, 2024 by Editor

The US Securities and Exchange Commission (SEC) is set to unveil its long-awaited new climate-related disclosure rule next Wednesday. The forthcoming rule, which aims to enhance and standardise climate-related disclosures, has generated significant attention and debate, particularly regarding the inclusion of Scope 3 emissions.

Scope 3 emissions, which account for greenhouse gases released throughout a company’s supply chain, all the way through to the use of its products by consumers, were initially part of the SEC’s draft rules published in March 2022. However, a recent Reuter’s article suggests that sources familiar with the matter believe that the SEC has opted to remove this requirement from the final draft, signalling a departure from earlier proposals.

With significant opposition to Scope 3 from some quarters, and a range of legal considerations being weighed up, it is perhaps unsurprising that the Commission may decide to limit its proposals in this way. Nevertheless, the rumour has sparked controversy, with critics arguing that excluding Scope 3 emissions could undermine efforts to address climate change and hinder investors’ ability to assess companies’ environmental impacts comprehensively.

The SEC’s (assumed) finalisation of the climate disclosure rule will come after extensive public feedback and amid concerns over potential legal challenges. The agency has faced pressure from various stakeholders, including corporations and lawmakers, who argue that climate-related disclosures exceed the SEC’s regulatory purview and could burden companies with excessive reporting requirements.

Despite these challenges, SEC Chair Gary Gensler has expressed confidence in the rule’s resilience against legal scrutiny.

As the SEC prepares to unveil its climate disclosure rule, stakeholders await further details on the scope and requirements of the final regulations. The rule’s impact on corporate reporting practices, investor decision-making, and climate-related risk assessment will be closely monitored (and no doubt litigated) in the coming weeks and months.

For more information, see the SEC announcement here and Reuter’s article here.

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