Business and Markets

Will the SEC Climate Rule Matter?

March 26, 2024  • Judy Samuelson

The SEC’s climate disclosure rule has finally landed. The rule requires companies to disclose their Scope 1 and 2 (direct emissions and energy use) but ducked on disclosure of Scope 3, i.e. carbon emissions considered “indirect”—that are released by producers of the company’s goods and services, or throughout the product life cycle.

It’s a significant step forward for federal-level climate disclosure, although ignoring Scope 3 is hotly debated; after all, for most companies, Scope 3 is the bulk of emissions.

Bloomberg reports that for climate and shareholder activists the decision to appease parts of the business community and back off on Scope 3 requirements is a set back, the federal mandate is still a win.

Mindy Lubber of Ceres said, “While we are disappointed the rule does not include key provisions from their 2022 proposal…demand for the disclosure of Scope 3 emissions continues to grow and many companies will be required to disclose this data.” Danielle Fugere, president of the shareholder activist group As You Sow, agrees: “I expect companies will continue to be under pressure to report more than what’s required.”

While we wait for the inevitable challenges to play out in the courts from both those who think it doesn’t go far enough and those who find the rule to onerous, a few things are already clear:

  • Regardless of the eventual disposition of the new SEC rule, there’s a Scope 3 disclosure regimen that’s going to capture you somewhere.  If it’s not exposure to the EU disclosure requirements, or one of the bills passed in California, there’s always the reality of being in the supply chain of someone who IS subject to a higher bar.
  • The ruling, regardless of outcome, will have the attention of Boards.  The SEC specifically calls for Board oversight of climate-related risks, and of management of said risks.
  • Employees will still hold business to account, and they are looking for strong commitments and execution; disclosure aimed at investors is a sideshow.

With the growing economic concerns over climate reality, no company can go it alone or ignore the systemic trends.

And no matter the fate of the SEC rule, disclosure was always going to be a means, rather than an end, to climate action. The rule will enable greater transparency and equip actors across the ecosystem to exert pressure on companies to do better. That’s a win, even if it’s just one inning in a much bigger ballgame.