SEC Climate Rule Coming Next Week

The Securities and Exchange Commission has scheduled a vote on its proposed climate-change disclosure rule for next week, amid rumors that the agency will drop its original idea to have companies track and report the carbon emissions of their supply chains.

The meeting will happen next Wednesday, March 6, at 9:45 a.m., and will be broadcast online for anyone who wants to observe. 

How long have we waited for this day, you ask? The SEC first proposed its climate change disclosure rule two years ago. That proposal originally would have required companies to disclose their so-called Scope 1 emissions (carbon emissions they generate directly), Scope 2 emissions (generated to make the power the companies consume), and Scope 3 emissions (generated by your upstream suppliers and consumers’ downstream use of your products).

That was the idea, at least. The climate change proposal subsequently became the most commented-upon proposal in SEC history, drawing more than 16,000 comments at last count. It also drew fierce criticism from the usual corporate interests, and you can bet your mortgage payment that whatever final rule the SEC adopts next week, somebody somewhere will challenge it in federal court after that. 

As far back as last fall we began hearing rumors that the final rule would scale back Scope 3 emission requirements substantially, and last week brought new rumors that the SEC will drop Scope 3 disclosures entirely. That could be a body blow to the usefulness of the rule, since for many manufacturers — aerospace, automotive, other heavy equipment — the bulk of their carbon emissions come further down the supply chain, from customers using their products. (Think automakers and the emissions coming from your car’s tailpipe; those emissions dwarf the carbon emissions generated from making the actual car.)

My (probably incorrect) prediction: the SEC will drop Scope 3 disclosures for most companies, but not for the heavy industry manufacturers where downstream emissions truly do matter. 

What About Attestations and Audits?

Regardless of those scope-based disclosures, large companies still need to watch what the final rule says about audits and assurance for those disclosures. 

As outlined in the original proposal, large accelerated filers and accelerated filers will need to obtain an attestation to the accuracy of their GHG disclosures from an independent outside assurance provider. The attestation would need to cover at least the Scope 1 and 2 disclosures. (Non-accelerated filers and smaller reporting companies would be exempt from the attestation.)

Large companies would first be allowed one year of limited assurance (“The reviewer is unaware of any material issues”) before upgrading to reasonable assurance (“The reviewer believes the disclosures are correct in all material aspects”) for all future years. 

What will any of that look like in the final rule? We’ll find out next week.

Meanwhile, companies have been preparing by developing in-house assurance capabilities, typically in the form of an “ESG controller” or some similar role — a person who oversees ESG reporting and makes sure that those disclosures are complete and accurate. Audit firms and GRC software vendors have also been falling all over themselves for two years, positioning their teams and their products to help companies on their ESG reporting journeys.

Don’t Forget, This May Not Matter

Whatever final rule the SEC adopts next week, for global companies one important question to ask is simply: who cares? So many other jurisdictions are already moving ahead with climate disclosure requirements that you’re going to encounter one soon enough already

For example, California’s new climate change disclosure rule goes into effect in 2026, as do the European Union’s new ESG reporting standards. Indeed, it’s quite possible that the SEC has stalled on adopting a climate change disclosure rule until now specifically so that it can align its requirements with those rules. That is, the SEC would (1) adopt a final rule in 2024, which would (2) go into effect for fiscal years beginning in 2025, which means (3) that your climate disclosures would arrive in annual reports in early 2026, the same year as Europe’s and California’s.

Anyway, all the curiosity will be over by this time next week.

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