It is likely that the final SEC climate disclosure rule will be delayed to 2024, as commission staff continue to review the 16,000 comments received on the draft – a large part of which oppose Scope 3 emissions reporting.
Speaking in front of the US Chamber of Commerce on October 26, SEC Chair Gary Gensler was cautious not to make any announcements regarding the final climate disclosure rules. However, he shared the main sticking points that emerged during the comment period – and suggested that reporting may only start in 2026 for fiscal year 2025.
The SEC rule was expected to be published this October, with the first disclosures expected in January 2025 for fiscal year 2024 – a timeline deemed “aggressive” by Tom Quadman, Executive Vice President of the US Chamber Centre for Capital Markets Competitiveness (CCMC), who was interviewing Gensler at the event.
In response, the SEC Chair reminded the audience that most of the disclosure requirements in the rule (particularly regarding the impact of climate-related events and transition activities, as well as Scope 1 and 2 emissions) would apply “in the first full fiscal year after [the final rule] in the Federal Register”. “So you know, I don't know when it will be in the Federal Register, and I'm not announcing that here,” he added.
If the rule is published in 2024, public companies will have to make these disclosures in January 2026 for the 2025 fiscal year – in line with California’s new climate laws.
SEC climate disclosure rule: transition spending too complex to track
Gensler confirmed that all final rules issued by the SEC are adjusted based on comments received on drafts, and gave a number of indications as to what is likely to change in the final climate disclosure rule.
Among the 16,000 comments received on the SEC climate disclosure rule draft published in March 2022, the most opposed measure is not, as many expected, Scope 3 reporting (although that comes as a close second).
Instead, Gensler noted widespread opposition to what he called the “footnote disclosure”: a requirement to report on investments made by the company to manage climate transition risks within their financial statements.
“The comment file is full of feedback on this point,” he said. “How does a company actually manage and add up and tag and track what they're spending: you could build a factory for 610 different reasons, and it might be partially for transition. And so we're kind of looking through that.”
Later on, he added that the comments received were not uniform, with some issuers “really supportive of what we put in the [draft rule]... Well, the footnote disclosure, maybe aside.”
Scope 3 reporting seen as beyond the SEC remit
Furthermore, Gensler repeatedly mentioned copious amounts of feedback on the potential requirement to disclose Scope 3 emissions. As a reminder, the SEC’s proposed rule would require listed companies to report Scope 3 emissions that are considered “material” or that form part of “a GHG emissions target or goal”, leaving much to interpretation.
This would represent a much lighter burden than the California laws, which require Scope 3 disclosures for all public and private companies with annual revenues in excess of US$1 billion.
Still, many organisations in the US oppose any Scope 3 requirements in the SEC rule. They argue that it would technically extend the SEC’s authority to private companies, since public firms would have to ask them for emissions reports to comply with the rule.
“We've got a lot of comments from the agricultural community, you know, rural America that said ‘look, we're a farmer or rancher, we're not a public company; we shouldn't get caught up in this’, and I agree with that,” said Gensler.
However, he also warned that many investors consider Scope 3 emissions as material: “What investors have told us in the comments that they've sent us is that understanding the emissions of a company's supply chain helps [them] understand what's called transition risk: what might be the future for that business. And it might be a transition risk because customers may buy different products because of the emissions of a supply chain, or regulations may change.”
Globally, investors are aggressively working to reduce their portfolio emissions: members of the Net Zero Asset Owner Alliance now manage US$9.5 trillion of assets.
As the Gensler reminded the audience time and time again during his intervention, the SEC’s remit is “about investors making investment decisions”, so comments from investors asking for Scope 3 disclosures are likely to weigh heavily in the balance.