Climate Activists Want SEC to Copy California, Europe

WASHINGTON—Climate activists are urging U.S. regulators to follow the footsteps of the European Union and California as they work to finish requirements for public companies to disclose their greenhouse-gas emissions.

California Gov. Gavin Newsom signed legislation earlier this month that will oblige large companies doing business in the state to report both their carbon emissions and those of their suppliers and customers.

In passing the laws, the Golden State leapfrogged the Securities and Exchange Commission, which has been struggling for more than 18 months to decide how far to take climate disclosures it proposed in early 2022 but hasn’t made final. California followed the European Union, which issued similar directives, and an international accounting body that has recommended some 140 other countries set such rules.

The Sierra Club, Public Citizen and Americans for Financial Reform said Thursday that after analyzing the California law and state records, they believe that 75% of Fortune 1000 companies will have to make emissions disclosures once California’s requirements take effect later this decade.

Because so many U.S. companies will be subject to the California law, similarly extensive SEC rules wouldn’t add much to their costs, the groups argue.

The lobbying push relates to the most controversial aspect of the SEC’s proposed rule: a provision that some firms estimate the greenhouse-gas emissions not just of their own operations, but also those of their suppliers and customers. Disclosure of what are called Scope 3 emissions is mandated in California’s and the EU’s new laws.

Advocates—who also include many Democratic lawmakers—say this information is vital for assessing a firm’s reliance on fossil fuels and the risks it faces from any transition away from those sources. Business groups, however, say that suppliers’ and customers’ emissions are difficult to calculate, and that disclosing that data could expose firms to shareholder litigation and lead big companies to demand emissions data from farmers and small businesses that sell to them.

SEC Chair Gary Gensler has come under pressure from both sides as his agency works to finish the rules. He has noted that the commission’s jurisdiction is narrow.

“We’re a securities regulator, that’s all we are,” Gensler told reporters Wednesday. “California, or for that matter, other jurisdictions may be calling upon these disclosures for other reasons.”

The SEC has said its goal is to make emissions estimates, which some companies are already compiling voluntarily, more consistent and comparable to one another so investors can use them more reliably.

For instance, General Motors has said direct operations and energy consumption sent 3.5 million metric tons of carbon dioxide into the atmosphere in 2022. Emissions from the use of its products emitted 208.6 million tons. The automaker says it plans to reduce the latter category by selling more electric vehicles and by encouraging suppliers such as U.S. Steel to reduce their own carbon output.

The climate rule is perhaps the most important item on Gensler’s agenda, and he will likely need the votes of other Democratic SEC commissioners to complete it. Many of Gensler’s allies in Congress, such as Sen. Elizabeth Warren (D., Mass.), want Scope 3 disclosures included.

After Newsom signed California’s law on Oct. 7, 26 congressional Democrats from California signed a letter calling on Gensler to include supply-chain emissions in the SEC’s final rule.

“We strongly urge the Commission to follow California’s lead and specifically include Scope 3 disclosure requirements,” the lawmakers, led by Reps. Adam Schiff and Juan Vargas, wrote.

But some industry groups such as the U.S. Chamber of Commerce and American Farm Bureau Federation have hinted they might sue to overturn the SEC climate rule if it mandates disclosure of supply-chain emissions. The California and EU laws don’t appear to have changed their minds.

If the SEC ends up dropping Scope 3 disclosures from its final rule, that could make it easier to challenge California’s law, industry officials said.

“I’m hopeful if the SEC does take out Scope 3…California will recognize that the SEC spent a lot more time looking at this than the legislators did, and it doesn’t make sense to have Scope 3 in,” said Travis Cushman, deputy general counsel at the Farm Bureau.

Gensler has suggested the California law could bring down the effective cost of his agency’s climate rule because so many companies will already have to make the new disclosures. But he has also said that fewer companies are voluntarily disclosing suppliers’ and customers’ emissions than are sharing data on their own.

“We’re going to do our best to stay within our authorities and how the courts interpret our authorities,” he said. Referring to the California law, Gensler said, “the only effect is it might change some of the economics.”

Write to Paul Kiernan at paul.kiernan@wsj.com