Campaigners call final SEC climate disclosure rule a major setback for investors and capital markets

But climate activists such as Friends of the Earth claim the Commission bended to pressure from Republicans and the Big Ag lobby, and “gutted” the original rule.

And, according to the Center for International Environmental Law (CIEL), an organization based in Washington, DC, with an office in Geneva, Switzerland, the SEC disclosure requirements, as adopted, fall short of the robust standards that investors need.

The final rule puts the US behind global counterparts — such as the EU, Canada, and Japan — and lags behind standards set in California, widening the regulatory divide and potentially disadvantaging US companies in the global market, maintains CIEL.

The SEC claims, however, that the final rule​​ reflects its efforts to respond to investors’ demand for more consistent, comparable, and reliable information about the financial effects of climate-related risks on a registrant’s operations and how it manages those risks while balancing concerns about mitigating the associated costs of the disclosure requirements.

Scope 3 emissions disclosure obligation dropped 

As originally proposed in March 2022, the rule would have required publicly traded companies to comprehensively disclose their supply chain emissions and climate-related financial risks to investors. Now the requirement for US listed companies to disclose Scope 3 GHG emissions, which are emissions from their upstream supply chains or from downstream product consumption, has been dropped.

“For many industries, including the food and agriculture sector, Scope 3 GHG emissions represent most of their overall emissions. For example, a recent analysis estimated that Scope 3 emissions from JBS (the world’s largest meat company) constitute 97% of the company’s emissions.

“This decision by SEC exposes investors to financial risk from incomplete information about a company’s climate risk profile,” bemoaned Friends of the Earth in a statement released yesterday after the vote.

The rule also requires only limited disclosures of scopes 1 and 2 emissions - those from companies’ operations and energy use - without making them mandatory.

"Amid escalating climate-related financial risks, these rollbacks signify a profound failure to ensure fair, orderly, and efficient markets," commented Erich Pica, president of Friends of the Earth.

Divergence between US and trading partners

The SEC’s rule excludes the climate risk factors arguably most useful to investors and significantly weakens the draft proposal made in 2022, which aimed at safeguarding investors against the existing patchwork of unreliable, incomplete, and greenwashed corporate reporting on climate-related financial risks and opportunities, argued Charles Slidders, senior attorney, financial strategies at CIEL.

“This rule will enable companies to obscure a major portion — in some cases nearly all — of their climate impacts through their value chains. It threatens to give a veneer of legitimacy to woefully inadequate corporate reporting on climate impacts and risks.

“The divergence between US disclosure regulation and that of our trading partners creates an information gap and leaves US companies at a competitive disadvantage. This information gap will create investor uncertainty about the climate risk US companies face, deterring investment, increasing the cost of capital, and ultimately putting them on the back foot compared to foreign companies that are required to disclose material scope 3 emissions," added the attorney.

Friends of the Earth has also advocated, alongside 87 other environmental and food and agriculture organizations​​, for a related proposed climate disclosure rule that would require major federal suppliers — including food and agriculture companies — to comprehensively disclose their supply chain emissions. The Biden administration has yet to finalize that rule as the Congressional Review Act deadline looms.