The Securities and Exchange Commission on Wednesday finalized the first requirements for large corporations to disclose their carbon footprint but scrapped a plan opposed by farm groups to mandate tracking of the greenhouse gas emissions in company supply chains.
The 886-page rule, approved by the SEC in a 3-2 vote, limits the disclosure requirement to Scope 1 and Scope 2 emissions, those that the company produces itself and those associated with its energy consumption. Dropped was a requirement to disclose Scope 3 emissions, which originate in supply chains.
Including Scope 3 emissions would have meant a food company, for example, would have had to track the emissions associated with producing the milk, meat or crops used in its products.
The rule limits disclosure of Scope 1 and Scope 2 emissions to those with a “material impact” on the company’s business strategy, operation or financial results.
Commissioner Caroline Crenshaw, a Democratic appointee, ultimately supported the scaled-back rule but complained during the commission's debate that that the regulations won't go nearly as far as they should, including by omitting Scope 3 emissions.
The rule “excludes requirements to disclose Scope 3 greenhouse gas emissions, despite comments making it abundantly clear that they represent a key metric for investors in understanding climate risk, particularly transition risk,” she said.
SEC Chairman Gary Gensler called the rule “an important step forward for investors to get more comparable, consistent and decision-useful information.”
First proposed in March 2022, the rule came under immediate fire from farm groups and their allies on Capitol Hill.
Comments filed with the SEC and signed by 10 organizations — including the American Farm Bureau Federation, Agricultural Retailers Association and groups representing corn, soybeans, wheat, cotton, beef, pork, poultry and potato producers — said the Scope 3 disclosure requirement would be “wildly burdensome and expensive” for farmers and potentially put small and mid-size farmers out of business.
The SEC ultimately fielded 24,000 total comments before finalizing the rule.
One of the SEC’s two Republican commissioners to vote against the rule, Mark Uyeda, said the commission was improperly using its authority for “climate regulation.”
The “rule is the culmination of efforts by various interests to hijack and use the federal securities laws for their climate-related goals. In doing so, they have created a road map for others to abuse the commission's disclosure regime to achieve their own political and social goals," he said.
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Ahead of the vote, the other GOP commissioner, Hester Pierce, questioned whether the SEC rule would preempt similar regulations being implemented in California and that cover Scope 3 emissions. Megan Barbero, the SEC’s general counsel, told Pierce the preemption issue would ultimately be up to the courts to decide.
The International Dairy Foods Association welcomed the exclusion of Scope 3 emissions from the final rule.
The proposal “demonstrated a lack of engagement with the dairy value chain and a lack of analysis of the economic and market effects on privately held and small entities directly impacted by the rule,” IDFA President and CEO Michael Dykes said in a statement.
“Since introducing the rule, the SEC has learned U.S. dairy has committed significant resources to achieve ambitious environmental stewardship goals, including GHG neutrality, optimized water use, and improved water quality by 2050, resulting in a glass of milk with the smallest carbon-intensity footprint in the world.”
Mark Eisele, president of the National Cattlemen’s Beef Association, called the final rule “a win for America’s farmers and ranchers.”
The environmental group Friends of the Earth blasted the final rule as “a massive giveaway to Big Ag and Big Oil, delivering a blow to investors. Amid escalating climate-related financial risks, these rollbacks signify a profound failure to ensure fair, orderly and efficient markets.”
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