SEC Climate Disclosure Rule Falls Short

Image credit: U.S. Forest Service
U.S. Forest Service /

Extreme weather events such as 10-foot blizzards in California and 70-degree days with overnight tornadoes in the Midwest – all in the past week -- demonstrate the fact that climate risk is financial risk.   

That's why Green America was pleased to see the Securities and Exchange Commission take up a climate disclosure rule. Consumers, investors, and retirement savers have made it clear that under the current voluntary standards, public companies are not providing them with transparent, reliable, and comparable information on climate-related financial risks and opportunities.  

Last year more than 15,000 Green America members and supporters signed our petition supporting the Securities and Exchange Commission’s draft rule requiring companies to disclose their carbon emissions. 

Unfortunately, due to pressure from dark money front groups and fossil-fuel interests that oppose investing that includes environmental, social, and corporate governance (ESG) factors, the SEC’s original proposal has been so watered down that it could cause companies currently disclosing emissions to backslide.

Here are three areas where the final climate disclosure rule falls short: 

Scope 3 emissions. While the proposed rule required disclosure of Scope 3 emissions (or emissions from the supply chain and customer use) when material, the final rule removes Scope 3 emissions altogether. This is problematic because Scope 3 makes up 70% of the average company’s greenhouse gas emissions at the root of the climate crisis – and up to 90% of emissions for fossil-fuel companies whose customers burn their products, and Wall Street banks that lend billions of dollars for fossil-fuel projects. 

Scope 1 and 2 emissions. While the proposed rule required disclosure of Scope 1 (direct emissions from company operations) and Scope 2 (emissions associated with the purchase of energy) in all cases, the final rule requires this disclosure only if the company deems these emissions to be “material.” This ill-defined metric opens the door to endless greenwashing, which consumers and investors are already complaining about and which the climate disclosure rule was supposed to solve.  

Who must disclose what and when. While the proposed rule required all publicly traded companies to disclose emissions, the final rule requires only large companies (known as large accelerated filers and accelerated filers) to disclose only Scope 1 and 2 emissions, and only if they deem these emissions material. Thousands of smaller companies are exempt -- and some companies that were issuing voluntary disclosures may cease doing so. Further, it requires financial reporting only for physical risk – the cost of extreme climate events – and not the risks to their business from the transition to a low-carbon economy. Finally, it phases these requirements in over time, with some reports not due for another 10 years.  

It is unfortunate the SEC is bending to pressure from corporate interests to substantially weaken the climate disclosure rule. Legal experts have made it clear the SEC has the legal authority, granted by Congress in the 1930s, to require reliable and consistent disclosures that investors can use to compare companies, including disclosures of greenhouse gas emissions. 

Opinion polls show American consumers and investors support strong and transparent climate disclosure requirements. A recent survey by Data for Progress and Unlocking America’s Future finds that two-thirds of voters -- including 80% of Democrats, 65% of Independents, and 55% of Republicans – support the strong SEC rule as originally proposed.  

Finally, a weakened climate disclosure rule puts the United States out of step with other major global economies, including California, the European Union, Canada, Japan, India, China and Singapore -- all of which have climate disclosure rules that include Scope 3 emissions. Because the requirements in these jurisdictions affect the majority of U.S. companies, it makes no sense for the SEC to create a patchwork of regulations by significantly departing from the direction the rest of the world is going. 

Due to all these shortcomings, the SEC’s final climate disclosure rule can only be seen as a first step to providing the transparent, reliable, and comparable information that consumers and investors deserve. We look forward to working with the SEC, investors, unions, retirement and pension fund managers, and other stakeholders to strengthen and improve the climate disclosure requirements in the future.