Earlier this month, Gary Gensler, Chairperson of the Securities and Exchange Commission (SEC), reported that the Commission is considering “watering-down” the requirements that were originally proposed in their climate disclosure rulemaking in March. The original proposal garnered widespread criticism and opposition.
As it currently stands, the rule will harm businesses by mandating they report on their Scope 3 emissions. These emissions are inherently subjective in nature, as they refer to emissions not produced by the company itself, but by entities for which they are redeemed indirectly responsible. These reporting requirements have been estimated to cost companies of all sizes a total of $10.2 billion annually. This is before accounting for the potential unseen costs of having company practices spilled out under the public microscope.
Due to the high regulatory cost, among other issues, opposition to the SEC’s mission creep into climate regulation has been strong. In response, the Commission appears open to walking back some parts of the proposed rule. A potential change to address criticism focuses on an arbitrary threshold for reporting. Currently, the rule’s threshold is one percent and requires companies to report on “any climate costs that are one percent or more of each line item total.” The SEC is weighing an increase to the threshold, which would make the rule less onerous.
These potential concessions come as the SEC finds itself in a difficult spot politically. The Commission can either finalize the rule as is and please the Biden administration. The administration is looking for political wins for an upcoming election and sees pushing agenda items through agencies during a divided Congress as their best option. On the other hand, the Commission can withdraw the rule and alleviate pressure from its critics, avoid costly litigation, and lessen their harm to industry.
The commission being at this crossroads is a clear indicator of how blatantly political this rulemaking process has been from the start. In the best interest of industry, investors, and consumers, the SEC would be wise to return to its actual mission. The commission should leave the pursuit of a political agenda behind and abandon this climate disclosure rule to focus on priorities within the scope of its congressionally mandated duties.