SEC may roll out final greenhouse gas reporting rule in 2024

Chemical companies are anxiously awaiting the final text of a rule from the US Securities and Exchange Commission (SEC) on greenhouse gas emission reporting. If finalized, the rule would require publicly traded firms to disclose greenhouse gas emissions to give investors a more complete picture of their financial condition.

The SEC initially proposed the rule in March 2022 but has postponed the publish date three times. Final action is now scheduled for April 2024. The chemical industry is bristling at the rule, which some call regulatory overreach. “The SEC lacks the expertise and legal authority to drive climate information policy,” Charles Franklin, senior director for energy, climate, and environment at the American Chemistry Council, a trade group, says in a statement released in September.

Under the rule, the SEC would require companies to report direct emissions, indirect emissions from electricity and other forms of energy, and emissions along the companies’ supply chains. This last provision, called scope 3, has ruffled the most feathers.

Critics point to the potentially high cost and difficulty of getting accurate emission data from suppliers. Supporters say that the SEC’s cost-benefit analysis of adopting the rule is valid and that there is regulatory precedent for the rule.

At the July 2023 meeting of the SEC’s Financial Stability Oversight Council, SEC chair Gary Gensler said that the commission doesn’t have a role in assessing climate risk itself. “But we do have an important role in helping to ensure that public companies make full, fair, and truthful disclosure about the material risks they face,” he said. Greenhouse gas emissions are often used as a proxy for the efficiency of a company’s operations. In addition, high emitters risk lawsuits and fines from potential emission and pollution regulations. Gensler also emphasized the importance of a thorough review of stakeholder input and legal developments relevant to the rule, pointing to the 15,000-plus comment letters that had been received.

These developments include other regional reporting requirements and possible legal challenges. Recently, the European Union and the State of California adopted reporting standards for greenhouse gas emissions, so companies operating in these areas may soon have to report what’s required in the SEC proposal.

In June 2022, the US Supreme Court ruled that the Environmental Protection Agency lacks the authority to regulate greenhouse gas emissions. This decision may set a legal precedent for a similar lawsuit against the SEC if the reporting rule is adopted. Whatever the final decision, the outcome will shake up corporate reporting in the coming year.