SEC is Rumored to Be Dropping Scope 3 GHG Emissions Disclosures from Final Climate Disclosure Rule
Saturday, October 22, 2022
Scope 3 GHG Emissions Disclosures Dropped by SEC

It has been publicly reported that the SEC is considering dropping “Scope 3” GHG emissions from the mandatory climate disclosures that were proposed last March.  Such a development--a major change to the key policy initiative advanced by the Biden Administration's SEC--would be quite significant. 

However, if the SEC has decided to alter the proposed climate disclosures, the choice to drop the Scope 3 GHG emissions disclosure is unsurprising.  The inclusion of Scope 3 GHG emissions in the proposed rule was one of its most controversial aspects. This controversy was highlighted not only by the numerous public commentary focused on this issue in the media, but also based upon the comment letters received by the SEC on the proposed rule as part of the formal notice-and-comment rulemaking procedure. Of all the comment letters received opposing the SEC’s proposed climate disclosures, the most frequent change sought--by far--was the removal of the Scope 3 GHG disclosure requirement. (Sixty-nine comments advocated for that position; the next most common suggested change—adopting a principles-based approach to materiality rather than bright-line rules—only had half as many comments in support, namely thirty-five.) Moreover, even many of the comment letters submitted in support of the proposed rule nonetheless advocated that the requirement to disclose Scope 3 GHG emissions be removed. (Specifically, thirty-six comment letters.)

Additionally, as many commentators have noted, calculating Scope 3 GHG emissions is an extremely complex and challenging process, subject to substantial estimation and various approximations. Indeed, the SEC stated that “a registrant may use reasonable estimates” when disclosing its Scope 3 emissions. So, it is not clear that robust data would necessarily have been produced through the disclosure of Scope 3 GHG emissions data through the proposed mandatory SEC disclosures.

Finally, it should also be noted that even the SEC’s original proposal did not compel Scope 3 GHG emissions disclosures from all companies—SRCs were already exempt. So, in a sense, the reported change would simply be an expansion of this exemption to all companies. Additionally, Scope 3 GHG emissions were subject to a “safe harbor” provision, so that no liability would attach under the federal securities laws—and so removing the Scope 3 GHG emissions disclosure requirement may be less impactful than some environmental advocates have suggested.

Nonetheless, even if the Scope 3 GHG emissions disclosure was less far-reaching than some public comments have suggested, dropping it from the proposed rule would be a major concession to the various interests that have argued against its inclusion in the proposed mandatory climate disclosure rule. 

"The SEC is considering dropping the most controversial provision on carbon emissions from its much-anticipated rule on corporate climate disclosures, according to people familiar with the matter. Known as “Scope 3” emissions because they go well beyond the greenhouse gasses generated by a corporation’s core operations, the measure would require public companies to account for carbon emanating from their entire supply chains and loan portfolios."

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