SEC to vote on adopting contentious climate disclosure rule Wednesday

The Securities and Exchange Commission (SEC) will vote this week on whether to adopt a contentious rule that would require publicly traded companies to disclose climate change-related information to investors — though the rule could be significantly scaled back compared with what the agency proposed in 2022.

The SEC’s five commissioners are slated to vote on whether to adopt the rule Wednesday, according to a Sunshine notice it published last week.

Supporters of the rule say that it would give investors important information about where their money is going, including how much the businesses they could invest in are contributing to climate change.

Opponents argue that the rule’s disclosure requirements go beyond the SEC’s duty to help investors make informed decisions. Some critics have gone even farther and accused the agency of pursuing a backdoor climate regulation meant to actually cut emissions. 

Two years ago, the SEC proposed to require companies to disclose both the risks climate change poses to their businesses and how much they emit.

The proposed rule would also require some companies to share not only the amount of emissions coming from their operations, but also what is emitted through use of their products by consumers. (Requiring disclosure of such product-use emissions has been described as a way to, for example, differentiate the emissions coming from a traditional car company and an electric car company.)

However, the provision that would require reporting such downstream emissions is expected to be dropped from the final rule.

A source familiar with the matter told The Hill in late February that a draft of the rule omitted this provision.

Reuters first reported that the measure for such emissions, known as “Scope 3,” would be dropped. 

The Hill’s source also said that the requirements to report direct emissions and emissions associated with electricity purchased by a company had also been rolled back. 

The source did not have specific details on what exactly would be expected to change for those reporting requirements. 

Asked to respond, an SEC spokesperson declined to comment on the specifics, saying the agency doesn’t comment on “speculation about what may be in or out of a rulemaking.”

“Based on the public feedback, the staff and the Commission consider possible adjustments to the proposals and whether it’s appropriate to move forward to a final adoption,” the spokesperson said.

Losing the Scope 3 component would be a blow to proponents of the rule. 

Those proponents argue generally that disclosing climate information is important in helping the public to make informed decisions — including the extent to which their money goes to bolstering high-emission companies. 

Tracey Lewis, policy counsel for consumer advocacy group Public Citizen’s climate program, said the rule is about giving investors “accurate, comparable decision-useful information that allows them to decide how and where they want their money invested.” 

When the rule was proposed in 2022, the SEC’s requirements received immense pushback from industry.

In addition to opposing the Scope 3 requirement, some industry players also said that the other requirements in the rule were too broad.

“They proposed a very broad and also prescriptive set of things that a company would have to report that ignores this concept of materiality and takes away this really useful filter for companies to determine what they should disclose so that they can better inform investors’ decisionmaking,” said Aaron Padilla, director of corporate policy at the American Petroleum Institute, a group that represents the oil and gas industry. 

Padilla said that in addition to this issue, the organization would also want the agency to have legal “safe harbors” for how the information is provided and for the rule to be generally more limited in the breadth of data it required and be phased in over a longer time frame. 

On Capitol Hill, both Republicans and moderate Democrats have pushed back on the rule — with members of the Senate Democratic Caucus including Sens. Jon Tester (Mont.), Joe Manchin (W.Va.) and Kyrsten Sinema (I-Ariz.) raising concerns about “Scope 3” in particular. 

“We are particularly concerned that, as written, the proposed rule’s Scope 3 emissions reporting requirements could indirectly penalize small agriculture producers for doing business with publicly traded companies,” Tester and Sinema wrote in a January letter.