SEC scales back climate rule in response to concerns from industry

Two years after proposing an expansive and expensive climate disclosure regulation for public corporations, the Securities and Exchange Commission on March 6 adopted more narrow requirements amid concerns over potential legal disputes and recent court rulings, including one from the Supreme Court, that raised questions about the extent of the regulatory body’s jurisdiction. 

National Association of Manufacturers 

“The NAM demonstrated for the SEC the practical realities of such a sweeping proposed rule, encouraging the SEC to make significant changes to remove inflexible and infeasible mandates, require disclosure only of material information and protect small manufacturers from the impact of these requirements. Among other critical issues, the NAM called on the SEC to remove the rule’s onerous and unworkable Scope 3 supply chain emissions reporting mandate—which the SEC has now done,” NAM President and CEO Jay Timmons said.  

U.S. Chamber of Commerce 

“For two years now, the U.S. Chamber of Commerce has raised significant concerns about the scope, breadth, and legality of the SEC’s climate disclosure efforts. We are carefully reviewing the details of the rule and its legal underpinnings to understand its full impact. While it appears that some of the most onerous provisions of the initial proposed rule have been removed, this remains a novel and complicated rule that will likely have significant impact on businesses and their investors. The Chamber will continue to use all the tools at our disposal, including litigation if necessary, to prevent government overreach and preserve a competitive capital market system,” U.S. Chamber of Commerce Center for Capital Markets Competitiveness Executive Vice President Tom Quaadman. 

The SEC also modified the initially suggested Scope 1 and Scope 2 disclosures, now mandating that only larger companies furnish emissions data if it’s deemed material. Scope 1 pertains to direct emissions, while Scope 2 refers to indirect emissions from purchased energy. The SEC dropped Scope 3 entirely, which would have required reporting across customers and supply chains and would be difficult for companies to calculate.  

The regulation mandates that companies must divulge the capitalized costs, expenditures, and losses associated with carbon offsets and renewable energy credits or certificates if they utilize them as significant elements in attaining their climate objectives or targets. 

Despite its narrower scope than originally proposed, the rule could still face a legal challenge from industry that it violates the “major questions” doctrine, which the Supreme Court cited in West Virginia v. EPA, a 2022 ruling that curbed EPA’s ability to regulate greenhouse gas emissions from coal-fired power plants and that requires Congress to give agencies permission to adopt policies of significant political or economic consequence.  

“The NAM remains committed to ensuring the SEC acts within its statutory authority, prioritizes flexibility and provides much-needed guidance—just as we are committed to providing leadership in addressing environmental challenges,” said Timmons, “This is why the NAM is keeping all options on the table as we evaluate the rule’s potential impacts on the manufacturing sector.”