Last week the Securities and Exchange Commission (SEC)
passed new regulation requiring publicly traded companies to report their direct greenhouse gas emissions in a 3 to 2 vote, but the Commission declined to adopt a broader “Scope 3” indirect emissions mandate.
It was an end to a multi-year debate at the SEC regarding carbon disclosure, with both sides declaring equal amounts of victory while also promising to continue the battle in courts and legislatures.
But despite the current version of the SEC rule, the vast majority of US public companies have already exhausted significant resources and human capital to climate accounting and carbon disclosure. According to
a joint report issued by the Financial Education & Research Foundation and Persofoni in November of last year, more than 70 percent of public companies responding to the survey were already disclosing scope 1 & 2 data and 16 percent were in the process of evaluating the disclosure of Scope 3 GHG emissions.
Only three percent of those surveyed were deferring compliance-related actions until the final SEC rules are issued.
As one controller quoted in the survey said, much of the infrastructure and focus in reporting sustainability metrics is already incorporated into the finance function as investors push for additional information.
“The burden of sustainability reporting is starting to be on the scale of how you think about talent and access to resources from a financial reporting perspective,” they said.
Below are some ways attorneys, rating agencies, and investors think the future disclosure debate will play out.
“[Despite] the reduction in scope of the Final Rules from the Proposed Rules, continued criticism, litigation, and congressional attempts to enjoin or rescind the Final Rules should be anticipated. The timeline of litigation and how the Final Rules will be treated during the pendency of litigation is uncertain and likely to be affected by changes in administrations. Accordingly, affected companies should start preparing to comply.” Mayer Brown
“Nonetheless, the new requirements still represent a significant expansion of the amount of climate-related disclosure that will be required by public companies and will require a significant amount of time and effort for companies and their advisors to be ready to comply. Not surprisingly, parties have already started litigation or announced pending litigation to challenge the Final Rules.” Cravath, Swaine & Moore
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Even with the changes agreed to in the final rules, they will be met with strong opposition, including challenges premised on a number of administrative law doctrines… Nevertheless, the outcome of judicial action is impossible to predict at this early stage, and any injunction may take some time to be instituted."
Willkie Farr & Gallagher
“Disclosures about scope 3 GHG emissions (those generated by the goods and services that a company produces or uses) remain an area of significant contention among managers. Managers including BlackRock, T. Rowe Price, and Dimensional express doubt over whether such emissions can be reliably calculated, or in some cases, even whether they can be considered material to a company’s shareholders.”
Morningstar
“This push for companies to disclose their emissions reminds me of the old Warren Buffett saying: ‘You don’t know who’s swimming without trunks until the tide goes out.’ That’s why we think transparency and information systems are incredibly important." Tom Styer, Galvanize Climate Solutions, Semafor