How the SEC Climate Rule Won Over Vocal Opponents
Summary
Though the agency faces attacks from both left and right after finalizing its climate disclosure rule, some businesses are happy they are off the hook.
The Securities and Exchange Commission is facing widespread opposition to its climate rule, but one group is breathing a sigh of relief after some final changes: small and medium-size businesses, which feared they would be casualties of the new disclosure requirements.
The climate rule, which the SEC finalized earlier this month, will require public companies to report certain emissions figures and to tell investors about climate-related risk factors.
The rule has detractors from all quarters. Republican attorneys general sued the same day, while both the U.S. Chamber of Commerce and the Sierra Club, an environmental group, sued last week, the latter alleging the new rule doesn’t go far enough. A U.S. appeals court has halted the implementation of the rule.
But one group seems at least partially placated: Small businesses, who joined the more than 16,000 commenters to largely implore the SEC to back down from certain reporting requirements, have so far reacted with some appreciation.
The SEC’s decision to ax a controversial requirement that public companies report on so-called Scope 3 emissions—the carbon footprint from supply chains and the use of their products—seems to have buoyed small businesses that worried they would be roped into their big customers’ compliance and accounting burdens.
“If they come to us and say we need to know what are your emissions of diesel engines or our ammonia refrigeration systems, that’s like ‘Holy cow, where do I start?’ Well, I’d hire a very high-price consultant," said Bruce Lackey, chief executive of Grove City, Ohio-based food wholesaler Happy Chicken Farms and Merry Milk Maid, which sells to grocery chain Kroger.
For many businesses, the bulk of emissions don’t come from their own operations but from elsewhere in their value chain. For some businesses, Scope 3 emissions can account for more than 90% of the total.
Proponents of mandatory Scope 3 reporting say the figures need to be included in corporate disclosures so that investors can have an accurate view of a company’s greenhouse-gas footprint.
But detractors say Scope 3 is hard and expensive to accurately measure, and for small businesses, the possibility of a new compliance burden was met with apprehension. The SEC estimated that the average compliance costs for companies over the first 10 years could range from less than $197,000 to more than $739,000 a year.
Sen. Jon Tester, a Democrat from Montana who calls himself the only working dirt farmer in the chamber, in hearings repeatedly questioned SEC Chair Gary Gensler on whether the burden would fall on businesses like his. He called the SEC’s climb down a win for farmers and ranchers.
“I know firsthand that there is more than enough work to go around on a family farm like mine, from fixing up my combine to dealing with a lack of moisture, so the last thing family farmers need is for big corporations or the federal government to force them to fill out piles of unnecessary paperwork," Tester said.
Ken Klippen, president of the National Association of Egg Farmers, was one of the many who wrote the SEC pleading for a reprieve.
“I was honest when I said there’d be farmers going out of business as a result," he said after the SEC announced the rule modifications. “Let’s just say I feel better. It’ll take some of the pressure off."
Other groups have similarly voiced approval of the move to get rid of the Scope 3 requirements.
“Small businesses can breathe a sigh of relief," said Beth Milito, executive director of the National Federation of Independent Business’s Small Business Legal Center.
The National Association of Manufacturers said the final rule “remains imperfect" but the organization saw the removal of Scope 3 reporting as progress.
The SEC’s changes to its final rule may not permanently exempt small businesses from the compliance burden of reporting their emissions. Some large companies have already begun to demand emissions data from their suppliers because investors, even without a government requirement, want a more complete picture.
In some jurisdictions, Scope 3 reporting will be mandatory, including the European Union, and for large businesses with ties to California, which passed its own landmark climate legislation last year. That legislation also faces challenges in court.
Lackey, the wholesaler, said he isn’t opposed to all environmental regulation but doesn’t see the value in requiring Scope 3 reporting.
“Hey, I’m all for clean air and water. But something like this, it’s almost a shotgun approach to something that is very difficult for even small businesses to understand," Lackey said. “This one was beyond unwelcome. It was truly unreasonable."
Write to Richard Vanderford at Richard.Vanderford@wsj.com
