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Even Scaled-Back SEC Climate Disclosure Rules Present CFOs with Challenges

S.J. Steinhardt
Published Date:
Mar 12, 2024

Despite the Securities and Exchange Commission (SEC)’s scaling back of its original proposed rules on corporate climate disclosure, finance chiefs must still wrestle with the challenges and costs of compliance, The Wall Street Journal reported.

“There is still a significant amount of work that people will need to do to figure out what disclosures they’re going to make,” said Eric Juergens, a corporate partner at law firm Debevoise & Plimpton, in an interview with the Journal. “Even if they’ve done a good portion of the work, there will be more to do.” 

The SEC’s final rules would require companies to report emissions from their operations and from energy purchases, also known as Scope 1 and 2, but not what the Environmental Protection Agency (EPA) calls Scope 3 emissions, “the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain," the EPA has stated.

The most challenging part of the rules for companies will likely be obtaining a high level of assurance on their Scope 1 and 2 greenhouse-gas emissions, said Steve Soter, vice president and industry principal at business-reporting software provider, in an interview with the Journal.

Some companies’ sustainability teams aren’t used to the level of regulatory scrutiny that financial-reporting personnel are, but both teams will need to jointly own climate data under the new rules, he said.

Retaining an accounting or consulting firm to provide those verifications would be an additional cost for companies that aren’t already doing so, said Susan Mac Cormac, a partner at law firm Morrison & Foerster, in an interview with the Journal. “There’s a lot of evolution that has to happen there because it needs to be independent and third party.” 

In announcing the rules, the SEC said that the average annual compliance costs for companies over the first 10 years could range from less than $197,000 to over $739,000.

“Our public markets are generally now only appropriate for our largest companies” because they are the ones that can afford the high costs, said Jay Clayton, a former SEC chairman and now a senior policy adviser at law firm Sullivan & Cromwell, in an interview with the Journal, referring to continued addition of costs and regulatory risks in the United States.

In addition to the SEC, the European Union last year adopted rules requiring sustainability disclosures from E.U.-listed and non-E.U. companies doing substantial business in Europe. In October, California passed a new set of state disclosure laws set to affect thousands of companies doing business there.

While the omission of Scope 3 from the final rule may mean slightly less work for companies, one CFO said she was disappointed that it is not required by the final rules.

“We believe this disclosure would provide valuable information for investors and support further mitigation of climate-related risks,” CFO Rachel Glaser of Etsy told the Journal, adding that her company expects to continue to report Scope 3 emissions voluntarily, which it has done since 2018.