SEC Mandates Public Company Disclosure Of Carbon Emissions But Cuts Scope 3 Requirement

SEC Mandates Public Company Disclosure Of Carbon Emissions But Cuts Scope 3 Requirement - Carbon Herald
Image: U.S. Commodities Futures Trading Commission Chairman Gary Gensler speaks on derivatives. Source: https://www.flickr.com/photos/thirdwaythinktank/9261423417

On Wednesday, the U.S. Securities and Exchange Commission (SEC) passed a mandate that requires public companies to disclose part of their carbon emissions and how climate change poses risks to their bottom line. The regulations mean that they will need to divulge their Scope 1 and 2 emissions, coming from their direct operations and energy consumption.

The SEC is set to reuquire the disclosure of carbon emissions from fiscal 2026 but only for Scope 1 and 2 emissions. Crucially, the mandate excluded Scope 3 emissions, those coming from supply chains or customers using their goods or services.

The omission was caused by a broad range of critics. Corporates from the banking and agriculture sector, as well as retailers like Walmart were among those providing 24,000 comments on the proposed requirements. 10 Republican-governed states also indicated they would sue the SEC if the initial draft of the mandate which was introduced in March 2022 and is broadly considered as part of the Biden administration’s effort to reduce greenhouse gases.

Supporters of a more strict disclosure mandate expressed their disappointment by the watered down rules. Democratic Senator Ed Markey of Massachusetts said in a statement they put the U.S. economy at risk. “It means big promises without any real accountability to deliver emissions reductions, despite these same entities having to provide this information in the European Union and in California starting in 2026.”

Relevant: Carbon Management Software Market To Reach $5.5B By 2032, New Report Says

SEC Chair Gary Gensler was looking for some middle ground after the announcement by saying “While many, many investors commented on this, and many investors today are using Scope 3 information in their investment decision making, based upon the public feedback, we’re not requiring scope three emissions disclosures at this time.”

Regardless of the recent back and forth preceding the announcement, disclosure requirements are on track to become a part of the investment landscape and it has already created fertile ground for companies looking to help clients navigate the regulatory landscape.

An example of such a company is Watershed, which recently announced a $100 million Series C funding round. Head of Policy Matt Fisher commented on the SEC requirements by saying “Companies around the world are already measuring and disclosing their emissions in response to pressure from investors, consumers, and customers, and driven by other regulatory regimes in the US and Europe. The SEC’s new rule will formalize that process, compelling companies to treat emissions data with the same rigor they apply to their financial accounting. As the climate economy grows, climate reporting will become more ubiquitous and more rigorous, informing investment, operational planning, and, most importantly, climate action.”

Relevant: ‘Carbon Accounting Goes Beyond What Intuitively Seems Like A Good Idea’: Steve Davis, Head Of Climate Science At Watershed

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