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SEC Approves Watered-Down Climate Reporting Rules

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American listed companies will not have to report on their Scope 3 emissions in rules that will, however, require them for the first time to disclose other climate data.

The US Securities and Exchange Commission (SEC) yesterday approved measures that would bind corporates into presenting data on the climate risks they face, their plans to mitigate them and, for some, their own greenhouse gas emissions. The aim of the rules is to present investors with consistent and comparable data on which to make portfolio and risk management decisions, the SEC said.

“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’,” SEC chair Gary Gensler said. “These final rules build on past requirements by mandating material climate risk disclosures by public companies and in public offerings.”

The Federal rules are the first of their kind in the US but fall well short of requirements under the European Union’s Corporate Sustainability Reporting Directive (CSRD). While they have been long in the making, SEC commissioners eventually presented a far more diluted set of measures than had been initially proposed in March 2022, including the declaration of emissions from supply and distribution chains.

Divided Reception

The SEC also watered down reporting requirements on Scope 1 and 2 emissions, those caused directly by companies’ own operations and energy usage. Firms will only be expected to make such disclosures if they are not already obliged to do so in other jurisdictions.

The announcement received a divided reception. Sustainable markets campaigner Ceres said the rules “represent a major victory for transparency in capital markets” but said it “will continue to advocate for voluntary and mandatory disclosures of a company’s full scope of emissions”.

The watering down of the initial proposals comes amid a growing anti-ESG movement in US. Since Gensler first proposed a climate reporting bill, opponents have rallied to demonise the ESG project. Banks and institutions have also lobbied against tough measures.

Many US state leaders have instigated bans on public funds being invested in sustainable markets and conservative movements have put pressure on institutions to row back on their ESG strategies.

Despite the SEC’s lowering of disclosure obligations, a coalition of states has already said it will oppose the measures. The SEC has said in response it will “vigorously defend the disclosures” in court.

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