Dive Brief:

• The Securities and Exchange Commission (SEC) will not require all publicly traded companies to disclose the carbon emissions from their vendors, suppliers and other third parties across their supply chains, but will limit the mandate to businesses that have already set goals for curbing such “scope 3” emissions, SEC Chair Gary Gensler said.
• “If a company decides, ‘I have made no commitment to the future on that and it’s not material to my investors and my operations under the Supreme Court test of materiality,’ you don’t have a disclosure obligation on scope 3,” Gensler said Tuesday. 
• “But if you have made a commitment to the public about the future path [regarding scope 3 emissions], then your investors want to understand how you’re managing that,” he said during a webcast hosted by The Wall Street Journal.

Dive Insight:

Gensler wants companies to follow detailed rules for reporting on climate risk, asserting that businesses and investors will benefit from clear, uniform company disclosures on the costs from global warming.
 
The SEC aims to require companies to describe on Form 10-K their governance and strategy toward climate risk and their plan to achieve any targets they’ve set for curbing such risk.

Companies would need to disclose their greenhouse gas emissions from their facilities (scope 1) and through their energy purchases (scope 2). Companies would also need to gain third–party attestations of carbon emissions estimates.

Disclosure on scope 3 emissions by suppliers would be phased in, subject to safe harbor protections and not required of smaller companies. A public comment period on the rule ends June 17.

The SEC proposal has come under fire from the U.S. Chamber of Commerce and other industry groups asserting that the agency would impose an excessive burden on companies and range beyond its expertise and congressional mandate.

Backed by several Republican lawmakers, the business groups have challenged the SEC’s bedrock assertion that carbon emissions is a “material” fact that should be included on a company’s financial statements.

The chamber “is concerned that the prescriptive approach taken by the SEC will limit companies’ ability to provide information that shareholders and stakeholders find meaningful while at the same time requiring that companies provide information in securities filings that are not material to investors,” according to Tom Quaadman, executive vice president for the chamber’s Center for Capital Markets Competitiveness.

“The Supreme Court has been clear that any required disclosures under securities laws must meet the test of materiality, and we will advocate against provisions of this proposal that deviate from that standard or are unnecessarily broad,” Quaadman said in a statement.

Companies that voluntarily report on the risks from climate change annually pay on average $677,000 to complete such research, according to a study by the SustainAbility Institute at ERM.

The study includes two cost categories excluded in SEC calculations and so exceeds the agency’s average annual cost estimate of $530,000. Absent the two categories, the average annual cost for a company is $533,000, according to the study.

By proposing the new rule, the SEC is simply meeting requests from investors for more information on climate risk, Gensler said. Investors with $130 trillion in assets under management have pushed for consistent, comparable disclosures on such risk, according to Gensler.

“What is beneficial to investors is to understand how the management is managing risk — whether it’s cyber risk, whether its competitor risk, whether its climate risk — and this is an area where investors are already making decisions,” he said.

The total channeled to investments aligned with environmental, social and governance (ESG) standards will surge to $50 trillion by 2025 from about $40 trillion today, according to Bloomberg Intelligence and the Global Sustainable Investment Alliance.