SEC said to have removed Scope 3 requirement from climate rule

The US Securities and Exchange Commission (SEC) has reportedly removed Scope 3 requirements from its draft climate rules after business groups and corporations threatened legal action.

A new draft has been circulating among SEC commissioners as the regulator prepares to vote on its climate disclosure rule by April 2024. Sources familiar with the matter have told Reuters this new draft doesn’t include Scope 3 emissions – a departure from other regulatory initiatives such as California’s climate rules and Europe’s CSRD.

While this omission may be seen as a victory for lobbying groups, it is likely to complicate compliance for large US multinationals that also fall within the scope of California or the EU’s disclosure laws.

SEC Scope 3 controversy

Initially, the draft published in March 2022 only asked listed companies to report Scope 3 emissions if considered “material”, but even though this wording gave companies some flexibility, it was seen as an overreach of the SEC’s powers.

Speaking at an event in October, SEC Chairman Gary Gensler told the audience that the agency had received 16,000 comments on its draft, and that the majority of them opposed Scope 3 reporting.

“We've got a lot of comments from the agricultural community, you know, rural America that said ‘look, we're a farmer or rancher, we're not a public company; we shouldn't get caught up in this’, and I agree with that,” he said at the time.

Still, he insisted on the fact that most investors now expect to receive information about companies’ value chain emissions, a metric that helps them assess transition risks.

State of Scope 3 reporting in the US

US companies disclose their supply chain emissions at a much lower rate than their European or Australian counterparts. According to the World Resources Institute, in 2021, 71% of European companies and 80% of Australian companies that disclosed emissions to CDP reported Scope 3 emissions, compared to just 56% of companies in the US. 

The US Chamber of Commerce has been a strong opponent to Scope 3 reporting requirements, arguing that these would “unnecessarily” raise regulatory burden and costs for companies. In January, the Chamber, along with the American Farm Bureau Federation, California Chamber of Commerce, Central Valley Business Federation, Los Angeles County Business Federation, and Western Growers Association, filed a lawsuit against the state of California over its new corporate climate disclosure laws – and it has warned the SEC that similar action would be taken if the climate rule was passed in its original version.

Think tank InfluenceMap has found that this position goes against the support shown by some of the Chamber of Commerce’s members for these climate disclosures, including United Airlines, Bank of America and UPS. 

“In its opposition to the SEC rule and Scope 3 emissions disclosure requirements, the Chamber appears to be adopting the most negative positions of its members, and omitting the positions of members that fully or partially support the rule,” said InfluenceMap.