SCALING BACK — The U.S. Securities and Exchange Commission looks to be nearing the finish line in its nearly two-year struggle to finalize its landmark climate risk disclosure rule, but the closer we get, the more it looks like the end product will significantly differ from the initial proposal and be displeasing to nearly everyone. The latest draft of the eagerly-awaited rule drops a requirement that public companies disclose so-called Scope 3 emissions, indirect output from their suppliers and customers, said a person familiar with the matter who was granted anonymity to discuss non-public information. Importantly, that change would free the financial sector from having to report on the emissions from the fossil fuel projects they finance. The person said the final rule is also likely to ease proposed reporting requirements for Scope 1 and Scope 2 emissions generated directly from a company’s operations as well as its energy usage, Declan Harty and your host reported late Friday. The person added that the SEC has hinted that the disclosures could be tied to materiality, or how important the information would be to the company’s investors. If finalized, the scaled-back rule would represent a major victory for business groups like the U.S. Chamber of Commerce and the American Farm Bureau Federation, which have forcefully opposed the rule and questioned the agency’s legal authority to compel these sorts of disclosures. And it would be bound to light a fire under progressives who have targeted the rule as crucial for their climate agenda. The revelations around Scopes 1 and 2 in particular signal the lengths to which SEC Chair Gary Gensler may be willing to go to bolster the rule against legal challenges from business groups. A big question is whether such changes would be enough to head off the legal threats, given the ferocity of the opposition and the Chamber’s lawsuit over the California disclosure laws enacted last year. The prospective changes would please the Farm Bureau, which joined the Chamber’s California lawsuit last month. Travis Cushman, the Farm Bureau’s deputy general counsel for litigation and public policy, said the group “would have no opposition to a final rule that removes Scope 3.” If finalized, the changes also would put the SEC out of step with an evolving global climate disclosure landscape. The California laws, European standards and rules from the International Sustainability Standards Board all require disclosure of a company’s full carbon footprint, including Scope 3 emissions. Gensler has cast doubt on the ability to reliably and accurately calculate Scope 3 emissions from a company’s vast value chain, and moderate Democrats like Sen. Jon Tester of Montana have expressed concern about the potential to impose onerous reporting requirements on small farmers. Even groups that have supported a more far-reaching SEC rule are reluctantly accepting the demise of Scope 3 reporting requirements for emissions, which can account for more than 70 percent of a company’s emissions, according to Deloitte. “On Scope 3, while we want it to be in there, we understand it may not be because of the hyper-partisan environment,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, a sustainability nonprofit that counts large corporations in its network. “We have relayed that to the SEC.” A coalition of groups including the Sierra Club, AFL-CIO, Americans for Financial Reform, Trillium Asset Management, the U.S. Public Interest Research Group and a slew of others have met with the three Democratic commissioners in recent days, according to a participant in the meetings who was granted anonymity to discuss the private sessions. The person said the groups reiterated the importance of the rule and the agency's authority to finalize the mandatory emissions disclosure requirements, but that the commissioners indicated the rule is likely to be weakened.
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