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The Securities and Exchange Commission approved new requirements this week that public companies disclose their greenhouse gas emissions, but without a key provision that was opposed by business groups.
The new rule, finalized in a 3-2 vote, would require companies to report on their Scope 1 and Scope 2 emissions, which come from sources a company owns directly and indirectly from the source of energy it purchases and uses.
The original proposal included requirements to report Scope 3 emissions, which encompasses emissions produced up and down the supply chain; companies were deeply opposed to this requirement, saying it would be too expensive, complex and burdensome.
Environmental groups wanted to include Scope 3 emissions, which account for ~70% of greenhouse gases produced by many businesses.
The Clean Air Task Force, the Sierra Club and Public Citizen are among the climate groups that have raised concerns about the Scope 3 omission.
The most important climate information that investors say they need is greenhouse gas emissions data, but “only a sliver of that risk” is being disclosed in the new rule, former SEC acting chair Allison Herren Lee told Bloomberg, comparing the omission to the exposed part of an iceberg when a much bigger danger lurks below the water.
The new rule also will require companies to report climate-related risks such as floods and wildfires that could affect the bottom line, and disclose steps taken to mitigate or adapt to climate risks, the SEC said.
Companies with at least $700M in shares outstanding must disclose material climate-related risks starting for FY 2025 and material Scope 1 and Scope 2 emissions beginning in FY 2026; climate risk disclosures will take effect a year later for companies with at least $75M of shares outstanding, and must begin disclosing material emissions data in FY 2028.
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