Top U.S.-listed company business associations have reacted angrily to the Securities and Exchange Commission's (SEC) historic proposal to require corporate America to disclose a range of greenhouse gas emission figures.
According to public correspondence sent to the agency, groups such as the US Chamber of Commerce, the Bank Policy Institute, the National Association of Manufacturers (NAM), and the American Petroleum Institute (API) asked the Wall Street regulator for more discretion in the details they provide to investors.
The magnitude of the opposition highlights the SEC's pressure to scale back at least some of its climate agenda, though the extent to which companies may be successful in winning concessions remains to be seen. The regulator has also seen an outpouring of support for the rules.
The letters were sent in response to a draft rule released by the SEC in March that would require public companies to disclose their direct and indirect greenhouse gas emissions, referred to as "Scope 1" and "Scope 2 emissions."
The measure would also require companies to disclose emissions generated by suppliers and customers, known as "Scope 3" emissions, if they are significant or included in any emissions targets set by the company.
This aspect of the rule has elicited some of the strongest opposition, including from a prominent investor group.
The proposed rules "are vast and unprecedented in their scope, complexity, rigidity, and prescriptive particularity," according to the Chamber of Commerce, the most powerful trade organization in the United States. It proposed, among other things, that Scope 3 reporting be voluntary.
Comments on the proposal were due on Friday and will be used to inform the SEC's final rulemaking, which some analysts anticipate will be completed by the end of the year. Many companies now make ESG - environmental, social, and governance - disclosures under voluntary standards, with an eye on developments in the European Union, where officials aim to reduce net global warming emissions by 55% by 2030 compared to 1990 levels.
President Joe Biden of the United States has stated that he wants to cut greenhouse gas emissions in half by 2030 and achieve net-zero emissions by 2050.
According to SEC Chair Gary Gensler, the agency is responding to investor demands for consistent information, with $7.5 billion invested in U.S. sustainable funds so far this year.
'ILL ADVISED ADVENTURE'
According to a comment letter from George Mason University law professor J.W. Verret, the SEC's rule could face legal challenges on the grounds that its benefits do not outweigh the significant reporting costs, or that it exceeds the SEC's authority.
To be sure, the agency has received a lot of support, including from Democratic Senators and the California Public Employees' Retirement System, the largest pension fund in the country. It praised aspects of the proposal, such as its request that companies provide information about potential emissions reduction targets.
Some of the harshest criticism came from Republican politicians in the United States, echoing other critics of ESG investing who argue that efforts to address environmental and other social issues should be left to elected officials rather than businesses.
For example, West Virginia Attorney General Patrick Morrisey, along with 23 other state officials, called the SEC's proposed rule "an ill-advised misadventure into environmental regulation" that is legally indefensible and should be suspended.
Republican senators also opposed the SEC's proposal, claiming that it would impose enormous costs on the US economy.
SEARCHING FOR IMPROVEMENTS
Top business groups did not go so far as to call for the rule to be repealed, instead proposing changes to narrow its scope.
NAM proposed canceling proposed Scope 3 reporting requirements and relaxing Scope 1 and Scope 2 reporting requirements.
Such changes "would significantly ease compliance burdens and reduce investor confusion while remaining true to the spirit of the proposed rule," according to the report.
The API stated that while it cannot support the current proposal, it does support "timely and accurate reporting of GHG (greenhouse gas) emissions."
Investors have generally supported the push for new climate disclosures as a means of clarifying the current mix of company statements, which can vary greatly in detail and approach.
The Investment Company Institute (ICI), which represents top U.S. asset managers, stated that it supported key aspects of the SEC's proposal, including Scope 1 and 2 disclosures, because measurements are now good enough to provide investors with "consistent and comparable information."
However, data gaps and methodological disagreements suggest that the SEC should withdraw its Scope 3 proposal, according to the ICI.
"The SEC's proposal should strike a better balance between ensuring investors receive the information they require while not inundating them with insignificant information," ICI CEO Eric Pan told Reuters.
