US SEC approves toned-down climate disclosure directive. But legal challenges loom
The US Securities and Exchange Commission approved a highly-anticipated rule on March 6, making it necessary for some public companies to report their greenhouse gas emissions and climate risks, after last-minute revisions that toned down the directive.
One of the most controversial climate disclosure rules in recent years, it attracted more than 24,000 comments from companies, auditors, legislators and trade groups over a two-year process. The directive passed 3-2, backed by three Democrats and opposed by two Republicans.
Key insights into SEC’s climate disclosure directive
Since the US’s top financial regulator unveiled the rule in 2022, experts have highlighted the possibility of it facing litigation almost immediately. The decision has brought the nation closer to the EU and California, which moved ahead earlier in terms of corporate climate disclosure rules.
The toned-down rule doesn’t require companies to report some indirect emissions regarded as Scope 3. Those don’t come from a company or its operations, but happen along its supply chain – for instance in the production of fabrics that make a retailer’s clothing.
The latest directive also reduces reporting requirements for other types of emissions called Scope 1 or direct emissions and Scope 2 or indirect emissions that come from the production of energy a company acquires for use in its processes.
Companies have to disclose those emissions only if they believe they are “material”. Moreover, smaller companies don’t have to report emissions at all. The Scope 3 requirements had triggered fierce opposition from companies, business groups and others.
But environmental groups and people supporting more disclosure have argued that those emissions usually represent the largest portion of any company’s carbon footprint and that several entities are already tracking such information.
CCCS confirms February 2024 as hottest on record
The SEC rule’s approval comes as climate change is contributing to more extreme and costly natural disasters across the globe. Last year, the US alone set a record for the number of extreme disasters that cost $1 billion or more.
On Thursday, the EU’s Copernicus Climate Change Service made another important announcement, reflecting the true scale of the climate crisis. It confirmed last month as the hottest February on record, following a record January and overall 2023.
