Final SEC Climate Disclosure Rule Is Step Forward But Fails to Reflect Science, Full Scope of Financial Risk

Published Mar 6, 2024

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The U.S. Securities and Exchange Commission (SEC) finalized a rule today requiring large public companies to disclose some of their heat-trapping emissions. It also requires all publicly traded companies to detail how climate impacts and the clean energy transition might affect their businesses and provide plans for meeting their emissions reduction targets. Additionally, the rule requires disclosure of how renewable energy credits (RECs) and carbon offsets factor into corporate transition plans, which the Union of Concerned Scientists (UCS) called for in its comment responding to the draft rule.

Though the final rule is a step forward, partisan politicking and pressure from industry groups significantly weakened original requirements for companies to disclose the full scope of global warming emissions. While emissions produced by a company’s operations, known as Scope 1 and 2 emissions, are included, the final rule dispensed altogether with requirements to disclose Scope 3 emissions, which include those resulting from use of a company’s products. This omission means companies will not have to disclose a category of heat-trapping emissions that account for 80-90% of total emissions in some industries, such as oil and gas.

UCS has long urged the SEC to require comprehensive and standardized climate-related financial risk disclosure by companies to better protect U.S. financial systems and people’s investments, while also sending a clear market signal that businesses must transition to a clean, climate-resilient future. UCS filed a detailed comment in response to the SEC’s earlier draft rule.

Below is a statement by Laura Peterson, a corporate analyst in the Climate Accountability Campaign at UCS, on the final rule.

“This rule answers some of the key demands from investors for reliable, comparable data needed to make informed choices in today’s world but falls significantly short of what is needed. Science from UCS and others has conclusively shown that climate change poses a significant material risk to investors, governments and the public. However, by excluding Scope 3 emissions from disclosure, conceding too much to corporate pressure on the materiality of emissions, and allowing an unacceptably long timeline for disclosure of Scope 1 and Scope 2 emissions, regulators are failing to accurately reflect the best available scientific evidence and heed the risks at hand to the economy. The majority of a company’s emissions often occur further down its supply chain and exempting them from disclosure presents an incomplete picture of corporations’—and their investors’—exposure to risk.

“Investors have repeatedly asked companies to disclose the full range of their emissions so they can understand which businesses are best prepared to manage the clean energy transition and build climate resilience. Companies themselves have even asked for comparability and standardization in risk disclosures. But the disparities between these policies and more stringent ones recently enacted by the state of California and the European Union are stark and could create further barriers and delays to investors having access to highly important risk disclosures they deserve.

“Despite a weak rule from the SEC today, the agency will have opportunities to evaluate and strengthen disclosure requirements in the coming years, and we look forward to working with the SEC to make sure the rule is accomplishing its goals. There are also other mechanisms for policymakers—including members of Congress—to ensure investors such as public pension funds and the broader economy are protected from increasingly severe climate-related financial risk.”