U.S. SEC Could Back Down on Scope 3 Emissions Reporting

U.S. SEC Could Back Down on Scope 3 Emissions Reporting

February 29, 2024, LexologyPRO

Matt Franker’s commentary was included in a LexologyPRO article on the U.S. Securities and Exchange Commission’s plan to scale down elements of its long-awaited climate disclosure rules. Matt comments on the SEC’s anticipated relaxing of reporting around “upstream and downstream” supply chain emissions, known as Scope 3.

“It would be a burden to collect and report the information, not only for the reporting company but for every entity upstream and downstream in the company’s value chain, and many of those other companies are not subject to SEC regulation,” Matt said. “The preparation of the disclosure would require a fair amount of estimation, raising the risk of liability for the information, even with the proposed safe harbor.”

Matt further points out that the SEC’s original proposals were not quite aligned with the supply chain reporting rules in effect in California and the EU, as they allowed companies to pick from a range of emissions methodologies. “Identifying which public companies would be subject to the California or EU requirements is difficult,” he said. “The three jurisdictions identified subject companies differently – by number of employees under the EU standard; by the amount of revenue under the California standard; by the amount of publicly traded shares under the SEC standard. The proposed SEC standard would have required Scope 3 disclosure only if material; the EU if “doubly material;” and California has no materiality threshold.”

He went on to explain that U.S. companies may find reporting easier if Scope 3 is dropped, saying, “If the SEC does not adopt a Scope 3 disclosure requirement, each company will have to examine its own characteristics to determine whether it is subject to other reporting regimes.”