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Companies Lash Out At SEC’s Proposed Scope 3 Rules

A new climate-risk disclosure rule that the U.S. Securities and Exchange Commission (SEC) is expected to finalize this year is dividing companies, industries, and lawmakers.  

SEC's proposed rules to "Enhance and Standardize Climate-Related Disclosures for Investors" include requirements for listed companies to report the so-called Scope 3 emissions. Those are the greenhouse gas emissions from the outside suppliers and vendors up and down a company's supply chain. 

The proposed requirements, of course, also include direct emissions of a firm's operations, the so-called Scope 1 and Scope 2, but it's the Scope 3 emissions that have raised the most debates among industry. Republican lawmakers are even looking to block the disclosure of the value-chain emissions with a bill introduced early this month. 

The opponents of Scope 3 emissions disclosures argue that there isn't a universal methodology for supply-chain reporting, and disclosures could be only guesstimates that would be wildly inaccurate and only misleading to investors. Such disclosures will also unnecessarily burden small companies, farmers, ranchers, or mom-and-pop businesses that are providers to public companies with costs and onerous regulations, the opponents say. 

The backers of the proposed SEC rule, on the other hand, argue that Scope 3 emissions need to be known and reported in a world and investment climate where the risks of climate change on finances and financial stability need to be accounted for. 

SEC's Proposed Rule

The rule, proposed last year, would require a registrant to disclose information about its direct greenhouse gas emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). Scope 3 emissions, those from upstream and downstream activities in the value chain should also be reported "if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions." 

"These proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a registrant's exposure to, and management of, climate-related risks, and in particular transition risks," SEC said when it proposed the rule.  Related: UAE Sought More U.S. Presence In The Gulf After Iran Seized Oil Tankers

SEC Chair Gary Gensler commented, "Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions." 

Scope 3-Reporting Supporters

Earlier this year, Gensler hinted that the rule could be scaled back in its Scope 3 emissions part. 

A group of Democratic lawmakers, led by Senator Elizabeth Warren, urged the SEC not to soften the Scope 3 rule in a letter in March, after reports emerged that the Commission could be preemptively scaling back some requirements.  

"Without comprehensive Scope 3 emission disclosures, companies could also simply offload emissions-intensive activities to suppliers or downstream customers to appear cleaner without actually lowering their emissions or the resultant transition risk, or redraw their organizational boundaries so subsidiaries that they own and operate are not part of their consolidated accounting group, as is common for private equity firms," the lawmakers wrote in the letter. 

Gensler has acknowledged that Scope 3 disclosures are not "as well developed" as Scope 1 and Scope 2. 

The SEC has received more than 15,000 comments on the proposed rule, a record-high number of comments on a proposed rule in the history of the Commission, Gensler noted. 

Environmental organizations, including Earthjustice, Greenpeace, and Food & Water Watch, said they strongly support Scope 3 disclosures but sought clarification and want the SEC to include in the final rule that "suppliers and downstream value chain partners of SEC registrants are not required by the rule to collect, aggregate and report emissions data to the SEC registrants, nor measure or estimate their emissions." 

These organizations also attacked Big Agriculture for trying to "evade" Scope 3 reporting. 

"Industrial agriculture drives as much climate change as transportation. Yet most investors don't know this, in large part because most of the greenhouse gas emissions are not from the slaughterhouses or processing plants, but from the livestock upstream, their waste, and their feed," said Carrie Apfel, senior attorney, Sustainable Food & Farming, Earthjustice. 

Opponents of Scope 3 Reporting 

The American Farm Bureau Federation and other major corn, pork, and soybean growers' associations say that farmers and ranchers should be explicitly exempted from the final text of the rule. 

"The Commission has ample legal authority to eliminate Scope 3 or explicitly carve out agriculture from Scope 3 reporting requirements. To fulfill the Commission's intent that farmers and ranchers not bear the costs of this rule, the final rule must either eliminate Scope 3 or explicitly exclude agricultural emissions from the reporting requirements," the associations said. 

While the SEC is reviewing the record-high number of comments from industries and individual companies, some lawmakers are trying to block the Scope 3 part in the rule. 

Representatives Ronny Jackson and Vicente Gonzalez of Texas introduced in early May the so-called Scope 3 Act. That bill seeks to block the Biden Administration's efforts to require publicly traded companies to disclose greenhouse-gas emissions in their value chains. 

"While Americans are still struggling with skyrocketing inflation, this proposed rule will only lead to even more bureaucracy and regulatory burden on American businesses," Jackson said. 

"The Biden administration has weaponized the SEC to promote Environmental, Social, and Governance (ESG) investing, and the American people will bear the brunt of this terrible decision." 

By Tsvetana Paraskova for

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Tsvetana Paraskova

Tsvetana is a writer for with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.  More