By Katanga Johnson

WASHINGTON, (Reuters) – As the U.S. Securities regulator finishes up a draft for a new landmark climate change rule in America, activists and environmentalists want it to make companies disclose their greenhouse gas emissions as well as those of their suppliers.

Corporate groups insist on a stricter rule to make reporting emissions data easier, cheaper, and protect them against potential lawsuits.

Last year, the Securities and Exchange Commission (SEC) started working https://www.reuters.com/business/sustainable-business/sec-considers-disclosure-mandate-range-climate-metrics-2021-06-23 on a new rule requiring U.S.-listed companies to provide investors with detailed disclosures on how climate change could affect their business.

The rule is part of a broader effort https://www.reuters.com/business/cop/key-recommendations-us-treasurys-financial-climate-risk-report-2021-10-21 by Democratic President Joe Biden’s administration to address climate change challenges and cut greenhouse gas emissions 50-52% by 2030 compared to 2005 levels, an ambitious pledge https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/01/fact-sheet-president-biden-renews-u-s-leadership-on-world-stage-at-u-n-climate-conference-cop26 that will require every federal agency to do its part.

Progressives and climate campaigners want the SEC to deliver a game-changing rule that will reveal all the emissions for which a company is responsible, while many investors https://www.reuters.com/business/blackrock-warns-heavy-polluters-over-emissions-data-before-shareholder-meetings-2021-02-17 say they need such data to fully assess companies’ exposure to climate change and related policy measures.

In the beginning, Gary Gensler (SEC Chair) stated that they hoped to release a draft of their plan by October 2021. Gensler last month stated that it intended to publish the draft as early as 2022.

According to two sources, staff are still working on this rule. Two other people with knowledge of the subject said the draft is not yet available for the SEC commissioners who vote to approve regulations.

SEC spokesperson declined to comment.

Staff are battling with the issue of whether or not all companies need to disclose greenhouse gas emissions in the fullest possible measure. This is also called “Scope 3”, according to investor and source advocates.

There are three categories of corporate greenhouse gas emissions: Scope 1, which is emissions that a company produces. Scope 2 is emissions that it indirectly creates, like electricity. Scope 3 refers to emissions generated throughout the entire company’s value chain including suppliers and customers.

According to companies, there’s no standard method for measuring Scope 3 emissions. This would make it difficult to provide that much detail.

They say that disclosing data on secondhand emission from partners and suppliers could lead to lawsuits by investors and third parties.

Scope 3 emissions are the biggest issue. … the agency is asking companies about activities that are outside of the firm’s control,” said Tom Quaadman of the U.S. Chamber of Commerce which is in discussions with the SEC on the issue. American companies could be sued for detailing such things.

Sources said that some insiders at the SEC sympathize with companies’ concerns. Staff are investigating whether Scope 3 disclosures might fall within an existing legal safety harbor, which protects forward-looking statements of companies, or whether a new safe harbour could be established.

Steven Rothstein from Ceres Investor Advocate Group, which advocates for Scope 3 disclosures said that SEC staff approached them in the recent months to get more feedback about Scope 3 issues including providing a safe harbor.

According to sources, another option to limit companies’ exposure to legal risk is for them to publicly reveal Scope 1 and 2 data and to file sensitive Scope 3 information on their suppliers and partners with the SEC.

“The agency’s trying to figure out whether these should be included in the company’s financial filing, or can they be provided or furnished separate,” Tracey Lee, Washington-based policy counsel on climate for Public Citizen said. Lewis also spoke with the SEC about the issue.

SECTOR DISCLOSURES

Scope 3 disclosures are mandatory in the United States. This would allow the United States to go beyond Europe’s voluntary standards and the Task Force on Climate-Related Financial Disclosures.

This group was created by G20’s Financial Stability Board and proposes that companies report Scope 3 emissions, if necessary.

Although it is not clear if two Republican SEC commissioners support this move, Democrats still have sufficient votes to pass the draft rule. Hester Peirce, one of the two Republicans, has suggested https://www.sec.gov/news/speech/peirce-chocolate-covered-cicadas-072021 emissions data disclosures are the domain of the Environmental Protection Agency.

Experts say the biggest challenge facing the SEC is to identify which Scope 3 metrics can help investors assess a company’s financial prospects and ensure that the rule allows for specific information, not generic.

Although emissions disclosures can be very important in carbon-intensive industries like automakers and oil, gas, and other sectors, they are less pertinent for many others. According to people, the SEC is looking at how much information companies need by sector.

Some companies in carbon-intensive sectors, including oil major ExxonMobil (NYSE:) Corp https://www.reuters.com/article/us-exxon-mobil-carbon/exxon-mobil-under-pressure-on-climate-aims-to-cut-emissions-intensity-by-2025-idUSKBN28O1TL, have recently begun reporting Scope 3 emissions, amid pressure from investors and climate campaigners.

According to people, the SEC is considering how much data financial institutions that finance carbon-intensive sectors should share. The people noted that banks have pledged not to emit any more carbon, which can have serious implications on their businesses.

Rothstein stated that the SEC also asked Rothstein if Scope 3 should be included for high-revenue large companies and then gradually add medium-sized businesses a year later.

He stated that “Scope 3 disclosure is essential and we hope to see the SEC be bold.” “The climate crisis calls for no less.”