Released March 07, 2024 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The U.S. Securities and Exchange Commission (SEC) voted 3-2 Wednesday to finalize a set of far-reaching greenhouse gas reporting rules for domestic and overseas companies operating in the U.S. The rule applies to publicly traded companies and private companies going through an initial public offering (IPO).
Three commissioners nominated by Democratic presidents voted to adopt the final rules while two commissioners nominated by Republican presidents voted against them. The rules will go into effect 60 days after the SEC publishes it in the Federal Register.
Hours after the SEC finalized the rules, The Washington Post reported that West Virginia Attorney General Patrick Morrisey (Republican) announced that he would lead nine Republican-led states in challenging the rules in federal court. The suit will argue that the SEC lacks the authority to force companies to weigh in on "controversial" climate issues, he said.
The business community, especially energy companies, did win an important victory in that the final rules do not include so-called Scope 3 emissions, which are emissions produced by a company's supply chain as well as the emissions released when consumers use a product they purchase from those companies. For oil and gas companies, particularly, Scope 3 emissions account for the vast majority, as much as 70%, of overall greenhouse gas (GHG) emissions.
Instead, in a phased-in approach tied to a company's annual revenue, the SEC will require large companies to begin disclosing, and estimating the materiality of, Scope 1 and Scope 2 emissions starting in fiscal year 2026. These large companies were referred to as "Large Accelerated Filers," presumably because companies of that size have been engaged in some form of GHG tracking and reporting for several years, if not a decade or more. Smaller companies can begin reporting later.
According to the U.S. Environmental Protection Agency (EPA) Scope 1 emissions are direct GHG emissions that occur from sources that are controlled or owned by an organization, such as emissions associated with fuel combustion in boilers, furnaces and vehicles. Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling. Although Scope 2 emissions physically occur at the facility where they are generated, they are accounted for in an organization's GHG inventory because they are a result of the organization's energy use.
The SEC's final GHG rules were issued nearly two years to the day after a draft rule was released by the SEC for public comment. The agency said it received over 24,000 comments on that draft rule from companies, trade groups, investors and climate activists. The comments were split between business groups that strongly opposed the rule outright, or only the inclusion of Scope 3 emissions, and environmental groups, former regulators and individuals and other groups that urged the SEC to act boldly in the face of what they called the "climate crisis."
The business community was strongly, though not universally, opposed to including Scope 3 emissions in the final rule. For more on the draft rule, see March 23, 2022, article - Energy, Business Groups Slam SEC's GHG Disclosure Draft Rule.
In a statement after finalizing the rules Wednesday, the commission said, "the final rules reflect the Commission's efforts to respond to investors' demand for more consistent, comparable and reliable information about the financial effects of climate-related risks on a registrant's operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules."
Among other things, the SEC said the final rule would require affected companies to disclose:
SEC Chair Gary Gensler (Democrat) commented: "Our federal securities laws lay out a basic bargain. Investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called 'complete and truthful disclosure.' Over the last 90 years, the SEC has updated, from time to time, the disclosure requirements underlying that basic bargain and, when necessary, provided guidance with respect to those disclosure requirements."
He added, "These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings. The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements. Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today. They will also require that climate risk disclosures be included in a company's SEC filings, such as annual reports and registration statements rather than on company websites, which will help make them more reliable."
The agency's two Republican commissioners strongly disagreed, asserting the commission had gone far beyond its realm of securities regulation and ventured into climate regulation.
In opposing the final rules, SEC Commissioner Hester Pierce commented, "The final rule is different from the proposal, but it still promises to spam investors with details about the Commission's pet topic of the day--climate." She said the scaled-back finalized rules "do not alter the rule's fundamental flaw--its insistence that climate issues deserve special treatment and disproportionate space in Commission disclosures and managers' and directors' brain space."
The agency's other GOP commissioner, Mark Uyeda, predicted the rules would make U.S. capital markets less attractive to companies. In a statement, he said, "Today, much emphasis will be placed on how this rule has been dialed-back from the proposal, is focused on providing material information to investors, and that the Commission is not a climate regulator. To that, I emphasize the advice that I give to would-be investors: do not rely on the marketing materials and read the prospectus instead. By the time you finish reading all 886 pages of today's release, you will conclude that this rule is climate regulation promulgated under the Commission's seal."
Uyeda claimed the entire rulemaking process was driven by climate activists seeking to "hijack and use the securities laws for their climate related goals."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
Three commissioners nominated by Democratic presidents voted to adopt the final rules while two commissioners nominated by Republican presidents voted against them. The rules will go into effect 60 days after the SEC publishes it in the Federal Register.
Hours after the SEC finalized the rules, The Washington Post reported that West Virginia Attorney General Patrick Morrisey (Republican) announced that he would lead nine Republican-led states in challenging the rules in federal court. The suit will argue that the SEC lacks the authority to force companies to weigh in on "controversial" climate issues, he said.
The business community, especially energy companies, did win an important victory in that the final rules do not include so-called Scope 3 emissions, which are emissions produced by a company's supply chain as well as the emissions released when consumers use a product they purchase from those companies. For oil and gas companies, particularly, Scope 3 emissions account for the vast majority, as much as 70%, of overall greenhouse gas (GHG) emissions.
Instead, in a phased-in approach tied to a company's annual revenue, the SEC will require large companies to begin disclosing, and estimating the materiality of, Scope 1 and Scope 2 emissions starting in fiscal year 2026. These large companies were referred to as "Large Accelerated Filers," presumably because companies of that size have been engaged in some form of GHG tracking and reporting for several years, if not a decade or more. Smaller companies can begin reporting later.
According to the U.S. Environmental Protection Agency (EPA) Scope 1 emissions are direct GHG emissions that occur from sources that are controlled or owned by an organization, such as emissions associated with fuel combustion in boilers, furnaces and vehicles. Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling. Although Scope 2 emissions physically occur at the facility where they are generated, they are accounted for in an organization's GHG inventory because they are a result of the organization's energy use.
The SEC's final GHG rules were issued nearly two years to the day after a draft rule was released by the SEC for public comment. The agency said it received over 24,000 comments on that draft rule from companies, trade groups, investors and climate activists. The comments were split between business groups that strongly opposed the rule outright, or only the inclusion of Scope 3 emissions, and environmental groups, former regulators and individuals and other groups that urged the SEC to act boldly in the face of what they called the "climate crisis."
The business community was strongly, though not universally, opposed to including Scope 3 emissions in the final rule. For more on the draft rule, see March 23, 2022, article - Energy, Business Groups Slam SEC's GHG Disclosure Draft Rule.
In a statement after finalizing the rules Wednesday, the commission said, "the final rules reflect the Commission's efforts to respond to investors' demand for more consistent, comparable and reliable information about the financial effects of climate-related risks on a registrant's operations and how it manages those risks while balancing concerns about mitigating the associated costs of the rules."
Among other things, the SEC said the final rule would require affected companies to disclose:
- Climate-related risks that have had or are reasonably likely to have a material impact on the registrant's business strategy, results of operations, or financial condition
- The actual and potential material impacts of any identified climate-related risks on the registrant's strategy, business model and outlook
- If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities
- Transition plans, scenario analysis, or internal carbon prices
- Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant's material climate-related risks
- Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant's overall risk management system or processes
- Information about a registrant's climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant's business, results of operations or financial condition
- Climate-related risks and their actual or likely material impacts on the registrant's business, strategy, and outlook
- The registrant's governance of climate-related risks and relevant risk management processes
SEC Chair Gary Gensler (Democrat) commented: "Our federal securities laws lay out a basic bargain. Investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called 'complete and truthful disclosure.' Over the last 90 years, the SEC has updated, from time to time, the disclosure requirements underlying that basic bargain and, when necessary, provided guidance with respect to those disclosure requirements."
He added, "These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings. The rules will provide investors with consistent, comparable, and decision-useful information, and issuers with clear reporting requirements. Further, they will provide specificity on what companies must disclose, which will produce more useful information than what investors see today. They will also require that climate risk disclosures be included in a company's SEC filings, such as annual reports and registration statements rather than on company websites, which will help make them more reliable."
The agency's two Republican commissioners strongly disagreed, asserting the commission had gone far beyond its realm of securities regulation and ventured into climate regulation.
In opposing the final rules, SEC Commissioner Hester Pierce commented, "The final rule is different from the proposal, but it still promises to spam investors with details about the Commission's pet topic of the day--climate." She said the scaled-back finalized rules "do not alter the rule's fundamental flaw--its insistence that climate issues deserve special treatment and disproportionate space in Commission disclosures and managers' and directors' brain space."
The agency's other GOP commissioner, Mark Uyeda, predicted the rules would make U.S. capital markets less attractive to companies. In a statement, he said, "Today, much emphasis will be placed on how this rule has been dialed-back from the proposal, is focused on providing material information to investors, and that the Commission is not a climate regulator. To that, I emphasize the advice that I give to would-be investors: do not rely on the marketing materials and read the prospectus instead. By the time you finish reading all 886 pages of today's release, you will conclude that this rule is climate regulation promulgated under the Commission's seal."
Uyeda claimed the entire rulemaking process was driven by climate activists seeking to "hijack and use the securities laws for their climate related goals."
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
