SEC’s draft carbon disclosure rules for companies with Scope 3 in dispute


SEC’s draft carbon disclosure rules for companies with Scope 3 in dispute


The Securities and Exchange Commission (SEC) of the United States has released on Monday its long-awaited draft rule. If the rules are approved by the regulators, companies would be required to disclose their direct and indirect greenhouse gas emissions, also known as Scope 1 and Scope 2 emissions, respectively.

The rules also require firms to disclose greenhouse gases generated by suppliers and partners, referred as Scope 3 emissions, if they are included in emission targets the company has set or if they are “material” for investors, meaning that the latter need the information to make decision on buying or selling a stock.

Gary Gensler, the chairman of the Securities and Exchange Commission, said the agency was responding to investor demand for consistent information on how climate change may affect the financial performance of the companies in which they invest.

It would also force businesses to disclose the “actual or likely material impact” of climate-related risks on their business, strategy, and outlook, including physical risks such as asset loss caused by extreme weather, as well as transition risks like a carbon tax.

In addition, companies who have set emissions targets or announced other plans to transition away from fossil fuels would be required to disclose detailed strategies and their roadmap timelines.

Many companies and corporate groups, including the U.S. Chamber of Commerce, argued that there is no agreed-upon methodology for calculating Scope 3 emissions, and that disclosing such information would be burdensome and expose corporations to liability if third-party data turns out to be inaccurate.

SEC Republican Commissioner Hester Peirce has also expressed its opposition in voting against the plan on Monday, stating that the SEC has no right to demand Scope 3 emissions data. The regulation might thus face legal challenges.

After the announcement, the draft proposal now enters a 60-day public comment period during which businesses, investors and other market participants are invited to offer opinions. The draft is expected to be finalized later this year.

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