US Securities and Exchange Commission to finalize controversial climate disclosure rule on March 6
In March 2022, the US Securities and Exchange Commission unveiled arguably its most controversial and impactful climate disclosure proposal, receiving substantial backing from institutional investors and asset managers but triggering notable controversy too.
On March 6 this year, the agency is expected to finalize a scaled-back version of the proposal. Regardless of the result, it is almost certain to be challenged in court. But first, stakeholders need to see the real content in the final rule to be released soon.
The original proposal requires public companies to provide sufficient climate-related information in their periodic reports and registration statements, including in what way any identified climate-related risks may affect the company’s strategy and business model.
GHG emission disclosures most controversial
“It would require companies to produce significantly more information and different types of information than what’s currently called for,” said Marc Rotter, counsel in Ropes & Gray’s capital markets group, calling the proposal a big change to the SEC’s disclosure rules in decades.
Under the proposal, public companies have to disclose the greenhouse gas emissions they generate or purchase, and the indirect emissions from the supply chain, if material, though smaller companies can skip the latter requirement, referred to as Scope 3.
If the agency unveils a scaled back rule on March 6, the scope 3 requirement is unlikely to survive. “The inclusion of Scope 3 has been the subject of intense lobbying by industry groups pretty much across the board,” added Rotter.
For and against the SEC climate disclosure rule
SEC Chair Gary Gensler has repeatedly defended the landmark proposal over the past couple of years, making the case that numerous top public companies are already disclosing some climate-related information, but there is a need for uniformity.
The proposal is aimed at increasing transparency about emissions and the climate risk of companies operating in the US. Several environmental groups and Democratic lawmakers in the country are calling on the agency to finalize the strongest rule possible.
On the other side are majorly business groups and Republican politicians, who stress that the proposal rule exceeds the SEC’s authority and is likely to overburden businesses and investors with largely complicated and unnecessary climate disclosures.
