The SEC Shelves Climate Change Reporting Rule

The majority of publicly traded companies say they will continue to voluntarily report greenhouse gas (GHG) emissions that are linked by many scientists to manmade climate change, so as to be transparent with investors. But the minority of companies that would rather not break down direct and indirect emissions of carbon dioxide and methane from their operations and supply chains — and report them to the public — just received a welcome break.

The Securities and Exchange Commission (SEC) issued a stay of its controversial climate change reporting rule while the 8th Circuit Court of Appeals (one rung below the U.S. Supreme Court) wades through multiple legal challenges. SEC chairman Gary Gensler shelved the reg to provide regulatory clarity to companies while litigation is ongoing. The 5th Circuit previously stayed the rule.

Opponents argue the rule is an example of regulatory overreach and duplicative of other rules on the books. They make a good point — GHG reporting falls under the Environmental Protection Agency’s purview, not the SEC’s. Environmental groups argue the SEC rule isn’t tough enough and will allow companies to hide or downplay their emissions. There’s no guarantee the 8th Circuit will decide the arguments before the November election, and an appeal by the losing side to the Supreme Court is on the table.

SEC Watered Down Its Initial Climate Proposal

Two years ago, the SEC initially proposed that public companies be required to disclose material risks associated with climate change. The reg called for reporting GHGs, categorized as:

• scope 1 (aka — direct from smokestacks and drilling or fracking)
• scope 2 (indirect — from the purchase and use of electricity, steam, heating and cooling), and
• scope 3 (emissions related to vendors’ and suppliers’ carbon and methane output).

Thousands of businesses and industry groups argued the reporting requirements would add burdensome recordkeeping costs to companies’ bottom lines. Opponents especially disliked the scope 3 requirement and demanded the SEC remove it.

To their credit, Gensler and company pared back the proposed rule to satisfy industry. The so-called “watered-down” climate reporting reg doesn’t include scope 3 emissions. Whether it ever goes into effect is in serious doubt for now.