SEC to vote on watered down climate disclosure rule next week

The US Securities and Exchange Commission (SEC) has announced that it will vote on whether to adopt its long-awaited climate disclosure rule on March 6 – almost two years after it published its initial draft.

Reports emerged last week that a vote was near, as a new draft was being circulated among SEC commissioners. The Commission is said to have removed a requirement for listed companies to disclose “material” Scope 3 emissions, after receiving thousands of comments from companies opposing the measure. 

Sources have also told Reuters that Scope 1 and 2 emissions disclosure requirements have also been watered down: made mandatory in the first draft, these would now only be required if considered “material” by the reporting companies – meaning many of the 5,200+ companies listed on US stock exchanges could choose not to disclose their operational emissions.

Investor expectations for SEC climate rule

While the SEC climate disclosure rule has been actively opposed by Republican factions and business associations, it is widely supported by investors and voters. According to researchers at the Harvard Law School for Corporate Governance, more than 80% of investors that submitted comments on the draft positioned themselves in favour of the regulation. 

In fact, the majority (25%) of the more than 16,000 comments received by the SEC were made by individual companies, and half of these also supported the rule, with another 25% considered “neutral”. 

“What investors have told us in the comments that they've sent us is that understanding the emissions of a company's supply chain helps [them] understand what's called transition risk: what might be the future for that business. And it might be a transition risk because customers may buy different products because of the emissions of a supply chain, or regulations may change,” SEC Chair Gary Gensler said at an October 2023 event held by the US Chamber of Commerce (one of the most vocal opponents of the rule).

Poor data quality still hinders investment decisions

Investors and financiers are increasingly integrating sustainability criteria into their lending and capital market activities in a bid to lower financed emissions, but many warn that their efforts depend on the quality of the data they receive from portfolio companies. 

HSBC – which recently included capital market transactions in its emissions reduction targets for the oil and gas and power sectors for the first time and has also added sustainability criteria to its mergers and acquisitions process – warned in its 2023 annual report that “future disclosures on financed emissions and related risks are reliant on our customers publicly disclosing their greenhouse gas emissions, targets and plans, and related risks”. 

“We recognise the need to provide early transparency on climate disclosures but balance this with the recognition that existing data and reporting processes require significant enhancements,” the bank added.