SEC Releases Historic Climate Disclosure Rule, But Walks Back Scope 3 and Other Critical Reporting Requirements
Long-awaited but underwhelming Climate Disclosure Rule begins process of reporting on climate risk
FOR IMMEDIATE RELEASE
MEDIA CONTACT: Sophia Wilson, [email protected], (341) 600-1832
BERKELEY, CALIFORNIA—MARCH 6, 2024—Today, the Securities and Exchange Commission adopted its long-awaited Climate Disclosure Rule which requires disclosure of greenhouse gas (GHG) emissions, risk analysis, and other climate-related information from publicly registered companies.
“Transparency is the bedrock of our financial system,” said Danielle Fugere, president and chief counsel of As You Sow. “While this Rule is an important step in improving climate-related disclosures, it ignores a critical component of risk — Scope 3 GHG emissions reporting. This leaves, on average, 75% of total greenhouse gas emissions across all sectors unreported.”
Because the Rule will not require companies to compile and report Scope 3 emissions, companies may be unaware of significant risk in their supply chains, and investors will not be fully informed of hidden climate risk in their investments.
“The old business maxim – what gets measured gets managed – is as relevant today as ever. The corollary, of course, is that risk that doesn’t get measured doesn’t get managed. Disregarding Scope 3 emissions creates a significant hole in shareholders’ understanding of climate risk,” said Fugere. “Decision making will be impaired by this critical omission.”
Only 29% of listed U.S. companies have disclosed at least partial Scope 3 emissions, leaving the bulk of emissions insufficiently addressed.
“Publicly traded companies of all sizes and from all sectors should be required to disclose the full scope of their operational, supply chain, and product-related emissions,” said Abigail Paris, decarbonization lead at As You Sow. “Disclosures of such emissions is the starting point for assessing climate-related risk. Regulations in Europe and California include reporting related Scope 3 emissions. While this pared-down rule is not surprising, it will be detrimental to companies and investors.”
The final Rule also departs from the SEC’s proposed rule in how it treats Scopes 1 and 2 emissions.
“The new SEC Rule will bring reporting of Scope 1 and 2 GHG emissions into a company’s Form 10-K, and require review with independent assurance,” said Paris. “This is an important advancement. Unfortunately, the Rule’s original requirement that all registrants report their Scope 1 and 2 emissions has been weakened significantly. It allows companies to determine the materiality of their emissions and report only what they think is significant, reducing comparability, creating significant subjectivity, and diminishing confidence in reporting.”
“Failure to assess climate risk doesn’t save money — it does the opposite. When incomplete information causes companies and investors to misallocate resources, it costs us all more in the long term,” said Fugere. “The scope and scale of climate-related risks and opportunity is transforming the way companies operate, how assets are valued, and how investors select companies in managing portfolios. Our financial regulations must reflect that fact.”
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As You Sow is the nation’s leading shareholder representative, with a 30-year track record promoting environmental and social corporate responsibility and advancing values-aligned investing. Its issue areas include climate change, ocean plastics, pesticides, racial justice, workplace diversity, and executive compensation. Click here for As You Sow’s shareholder resolution tracker.