SEC's Climate Disclosure Rule: Excluding Scope 3 Emissions and Industry Response

Editorial TeamEditorial Team
March 12th, 2024
12:44 PM

The SEC has introduced new rules that aim to standardize climate-related disclosures, emphasizing Scope 1 and 2 greenhouse gas emissions.


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The Securities and Exchange Commission (SEC) recently announced new rules to standardize climate-related disclosures for public companies and public offerings, highlighting requirements for Scope 1 and 2 greenhouse gas emissions. However, the exclusion of Scope 3 emissions has stirred debate and legal action, shaping the evolving landscape of corporate transparency and regulatory compliance.


Exclusion of Scope 3 Emissions

While SEC Chair Gary Gensler lauded the rules for enhancing investor information, the decision to exclude Scope 3 emissions raises questions about the comprehensiveness of disclosure requirements. This exclusion, likely influenced by stakeholder feedback and industry concerns, underscores the challenges of accurately measuring and reporting supply chain emissions.

The SEC's stance contrasts with California's legislative push, exemplified by Senate Bill 253, which mandates comprehensive greenhouse gas emissions disclosure, including Scope 3 emissions. This regulatory dissonance complicates compliance efforts for multinational corporations operating across jurisdictions.


Legal Challenges and Industry Response

Legal challenges against the SEC's rules, spearheaded by a coalition of Republican states and industry groups like the U.S. Chamber of Commerce, highlight ongoing resistance to regulatory interventions in climate disclosure. This resistance underscores the complexity and contentiousness of navigating environmental regulations in corporate governance.

Beyond the U.S., the European Union's ambitious climate agenda faces pushback from various stakeholders, indicating broader challenges in aligning regulatory frameworks with economic imperatives. The lack of international standardization further complicates companies' efforts to establish robust emission reporting practices. Amid regulatory flux, companies must proactively strategize their approach to emissions reporting, considering data availability, measurement methodologies, and stakeholder engagement. Collaboration with trading partners and investment in technology will be crucial in navigating evolving regulatory landscapes and meeting stakeholder expectations.

As regulatory scrutiny intensifies and global climate commitments deepen, companies must remain vigilant, adapting their emission reporting strategies to evolving regulatory landscapes. While challenges persist, proactive engagement and strategic alignment will ensure transparency and resilience in an increasingly climate-conscious world.  

The Crucial Role of Scope 3 Emissions in Achieving Net-Zero Goals

Emissions within a company's supply chain, comprising over 70% of total emissions and often exceeding direct (Scope 1) emissions by a factor of 11, highlight the imperative of value chain decarbonization in the pursuit of global net-zero objectives by 2050. Scope 3 emissions, encapsulating all indirect upstream and downstream emissions in a company's value chain, excluding Scope 2 emissions from power generation, span from raw material extraction to end-of-life disposal, emphasizing the comprehensive nature of emission considerations in corporate sustainability strategies.

Driven by science-based target setting (SBTs), Scope 3 emissions have gained prominence, with the SBTi mandating companies seeking validation to undertake a thorough Scope 3 inventory. 96% of SBTi-validated targets incorporate Scope 3 emissions, underlining their pivotal role in climate mitigation efforts. Obligatory under the SBTi Net-Zero Standard, Scope 3 targets become mandatory for companies with 40% or more of the total Scope 1, 2, and 3 emissions, underscoring their critical importance in achieving corporate carbon neutrality. Despite the complexity of addressing indirect emissions, which is essential for aligning with climate stability goals, concerted efforts are imperative to navigate challenges and advance sustainability agendas effectively.