The SEC approved a diluted climate disclosure rule, eliminating a provision fiercely opposed by corporations

The  US Securities and Exchange Commission (SEC) has approved new requirements for public companies to disclose their greenhouse gas emissions, aiming to provide investors with consistent and reliable information about climate risks. The decision follows two years of lobbying from various industries and climate groups, even though there was criticism from corporations and Republican lawmakers who argue the SEC is overreaching.

The amended rule drops a provision that would have required reporting of certain indirect emissions, a move contested by environmental groups who argue that these emissions are significant.

Instead, companies will report direct emissions (Scope 1) and emissions from energy purchases (Scope 2), if they are deemed material to investors. Additionally, companies will need to disclose climate-related risks and efforts to mitigate them. The rule faces opposition from some SEC commissioners who believe it will inundate investors with unnecessary information and make U.S. capital markets less attractive. The Biden administration has prioritized emission reduction efforts, while globally, there is a push to transition away from fossil fuels. 

However, the new version of disclosure has reduced requirements. Finance officers must still tackle significant challenges and costs to comply. The rule necessitates reporting Scope 1 and 2 emissions but excludes certain indirect emissions (Scope 3). This shift from the initial proposal aims to address concerns about complexity and costs raised by companies. Compliance demands substantial effort and adjustments from companies, with ongoing work required to determine precise disclosures.

The final rule permits a phased-in approach to compliance, including exemptions for smaller companies. It mandates initial reporting based on fiscal year 2025 information, to be disclosed in fiscal year 2026.