SEC gets an earful from companies over proposed emissions rule

Companies say the agency’s proposal could be too unwieldy to manage.
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· 5 min read

In March, the SEC released a proposal for a new rule that would require publicly traded companies to disclose their greenhouse-gas emissions alongside annual reports and other mandatory filings. The comment period for the proposed rule—which is still years away from being finalized—closed June 17, and many companies took the opportunity ahead of the deadline to provide heated criticism.

As part of the SEC’s efforts to crack down on “greenwashing,” under the proposed rule, companies would have to have some of their reporting about emissions independently certified. Since March, the SEC has received more than 10,000 comments from companies, stakeholders, trade groups, and members of the public.

The comments expressed concerns about the potential increased costs of implementing the provisions of the rule, the flood of data they would have to contend with, and the complexity of what are known as scope 3 emissions, which encompass a company’s indirect effects on climate as part of its supply chain. A company with at least $75 million in equity shares would have to disclose scope 3 emissions if it has set a target or goal for greenhouse-gas output.

Nasdaq, the US Chamber of Commerce, and corporations including Dow Inc. urged the SEC to change, or even halt, the proposal. While the objections of a business-lobbying group like the Chamber of Commerce and a chemical company like Dow may not be all that surprising, even some early supporters of environmental, social, and governance (ESG) initiatives have found fault with the SEC’s approach. BlackRock, an institutional investor that has urged companies toward sustainability, wrote that while it supports the SEC’s overarching goal, it claims the proposal could lead to heightened compliance costs and reduce the consistency of disclosures to the public, which could cause confusion.

As You Sow, a nonprofit in the ESG space, went so far as to call on the SEC to require scope 1, 2, and 3 emissions reporting, a much more comprehensive approach. “Banks and other financial-system participants need such data to assess and reduce climate-related risk exposure and reduce their own contributions to climate change,” the organization wrote in its comment.

A survey by the SustainAbility Institute by ERM found that corporate issuers will need to spend $533,000 annually on climate-related disclosure. The cost for institutional investors could average as high as $1,372,000 annually “to collect, analyze, and report climate data to inform their investment decisions.”

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The comment period was just the latest marker in the fight toward pushing corporations to disclose their climate risks. The ESG movement has become mired in controversy, and even become politically co-opted, Alison Taylor, adjunct professor at NYU Stern School of Business, told CFO Brew.

Tech against the world: Even as the criticism of the proposed rule has grown, there’s been an unexpected group showing support: technology companies.

Salesforce, a cloud-computing provider, argued in its comments that companies should disclose their scope 3 emissions, and in the absence of greenhouse-gas protocol guidance (the framework the SEC is using), organizations should be able to supplement their reporting with other green accounting frameworks.

The Partnership for Carbon Accounting Financials (PCAF) and its members have pushed to embed climate considerations into accounting practices. BankFWD, a Rockefeller-backed nonprofit, released a report in May that revealed cash and investments are two of the largest, if not the largest, sources of emissions for some of the world’s biggest companies.

Financed emissions refer to corporate capital used to fund and support initiatives. Corporations, like retail investors, have bank accounts where they park their cash. BankFWD writes in the report, “Corporate cash and investments do not just sit passively in bank accounts accruing interest.” Instead, that money is used to finance emission-generating projects that banks and companies contribute towards. This phenomenon is also referred to as finance supply chains.

It’s the banks: When tech companies highlight their financed emissions, “it dumps the problem on the bank, and enables the company to say that its main exposure is indirect and the banks should fix it,” said Taylor.

Also, many tech companies have faced increased employee pressure to take action on climate change and various social-justice movements, Taylor said. Supporting the SEC emissions proposal would likely make some employees happy, which is “easier to pull off and less resource-intensive than supporting state-level action.”

Although the official comment period for the climate-related disclosures proposal is now closed, the discussion over climate regulation is far from over. On his new YouTube show, SEC Chair Gary Gensler recently read tweets (taking a page from Jimmy Kimmel’s “Mean Tweets” segment) that compared the SEC to watching a tortoise in action. Gensler said that while it may be frustrating to watch the glacial pace of lawmaking, acknowledging all comments “leads to better and more sustainable rule-making.”—KT

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The latest news and insights corporate finance professionals need to know to keep up with their constantly evolving industry.