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Companies Face Pending Emissions Disclosure Rules from E.U. and California

S.J. Steinhardt
Published Date:
Sep 20, 2023

While many large American companies try to fight pending rules and regulations governing disclosure of their greenhouse gas emissions, they may have no choice, as two large economies are moving ahead with their own plans, The Wall Street Journal reported.

The European Union, the world’s third largest economy, and the state of California, which would be the sixth largest if it were a country, are on the verge of approving rules that would apply to private as well as public companies that do business there, and to require those businesses to calculate and disclose emissions from their suppliers and customers.

In coming days, California Gov. Gavin Newsom plans to sign into law a bill that would require companies to disclose their  emissions. It would apply to any business, public or private, that does business in the state and has more than $1 billion in revenue.

The rules in Europe are currently under review by the European Parliament and the national governments, and are expected to be approved in the coming months.

California also passed a bill that would require companies to disclose climate-related risks. The rules will take effect over the next several years, but could be challenged in court or by means of a referendum.

“There is a clear, worldwide, growing regulatory momentum for consistent information,” said Steven Rothstein, managing director for nonprofit Ceres’ Accelerator for Sustainable Capital Markets, in an interview with the Journal. “Investors, companies, clients, employees, customers are all saying they don’t want to be blindfolded.”

American industry groups, including the Farm Bureau, National Association of Manufacturers and U.S. Chamber of Commerce, have objected to the Securities and Exchange Commission (SEC)’s  proposed rules on climate-related disclosures for investors, arguing in comment letters that the requirements’ costs outweigh their benefits and that the agency lacks the statutory authority to implement them.

The big change for companies, and the shift that industry groups have fought against, is disclosure of so-called Scope 3 emissions, which are produced by suppliers and customers.

These emissions often constitute the vast majority of a company’s carbon footprint. Tracking Scope 3 emissions provides a more complete view of a company’s reliance on fossil fuels, and critics say that Scope 3 data is hard to measure reliably and expensive to produce.

But companies may be resigned to having to disclose this information and, as such, seek consistency from regulators to limit the cost of complying.

“Most of the companies which the SEC regulates are going to be subject to the California disclosure rule,” said Clara Vondrich, a senior policy counsel for the climate program at Public Citizen, a liberal advocacy group, in an interview with the Journal. “The cost of what these companies are going to have to do for the SEC is going to be greatly reduced.”

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