SEC Must Reconsider Scope 3 Reporting in the Proposed Climate Risk Disclosure Rule

On June 17, the Securities Exchange Commission (SEC) is due to receive comments from companies and interested parties in response to the SEC proposed Climate Risk Disclosure Rule. The proposed rule is well-intentioned, but to say the least, very controversial. As comments are received, the SEC will be charged with absorbing a wide range of perspectives, including concerns, but also suggestions for improvement. By way of background, on March 21, 2022, the SEC proposed a rule that would require registrants to report climate-related disclosures in their filings, including information about climate-related risks that might have a material impact on their business operations and financial results as a part of audited financial statements. The information about climate-related risks also would include disclosure of greenhouse gas emissions, referred to as “Scope” emissions. Those include direct greenhouse gas (GHG) emissions (Scope 1), and indirect emissions from purchased forms of energy (Scope 2). Most controversial, however, is a requirement to disclose GHG emissions from upstream and downstream activities within its business operations value chain (Scope 3). By definition, Scope 3 emissions include those resulting from activities or assets not directly controlled or owned by the registrant, but they are part of the upstream (suppliers)…