Dive Brief:
- The potential exclusion of scope 3 greenhouse gas emissions from the SEC’s upcoming climate-related disclosure rule isn’t likely to have a major impact on large companies that still have to report on it for other jurisdictions, KPMG analysts told reporters Thursday. Companies will need to report scope 3 emissions to comply with California climate disclosure laws, the European Union’s Corporate Sustainability Reporting Directive and the International Sustainability Standards Board’s framework, they noted.
- “There are other regulations that [companies] are going to have to do scope 3 [for] anyway … they are going to have to have a rigorous process to inventory scope 3 emissions,” said Rob Fisher, a U.S. ESG leader at KPMG. In addition, many companies, due to commitments and targets they’ve already set, are holding themselves to meeting scope 3 goals and asking others in their value chains for information on scope 3 compliance, he added.
- Another critical issue to watch out for is whether the upcoming SEC rule will allow for interoperability among various jurisdictional climate-reporting requirements. Differences in quantitative metrics could create complexity for companies, according to Maura Hodge, a U.S. ESG audit leader at KPMG.
Dive Insight:
The SEC reportedly dropped a requirement for publicly-traded companies in the U.S. to report their scope 3 greenhouse gas emissions — emissions that are not directly produced by the company itself or assets owned or controlled by the company, but by entities that are part of the company’s value or supply chain — as part of its climate disclosure rule. The SEC plans to vote on its proposed rule this week.
The possible exclusion of scope 3 emissions has been seen as a victory by some business groups that questioned the legality and authority of the SEC to mandate such climate-related disclosures. Meanwhile, environmental organizations, including the Sierra Club and Earthjustice, are considering suing the SEC over the possibility of downgraded disclosure requirements.
A challenge for companies, KPMG said, might be the ability to meet a patchwork of differing climate reporting requirements across jurisdictions. The SEC disclosure requirements would mean companies would have to disclose climate-related risks that are 1% or higher of a total line item in their financial statements. (In line item accounting, each income and expense component is categorized in a different segment on a company’s balance sheet.)
By contrast, the CSRD’s reporting obligations are far more extensive and include a double materiality standard, requiring companies to report how climate-related risks affect a company’s financial performance as well as broader impacts on people and the environment.
“If companies have to comply with the CSRD, they're probably 75% to 80% of the way there in terms of generating the information that they need to comply with the SEC,” Hodge said.
Multiple reporting requirements may raise questions around whether there will be possible equivalencies that could lessen the reporting burden on companies.
“The other thing we're keeping an eye on … is equivalence, and will a jurisdiction take reporting that you're doing in, let's say, Europe, and then allow that to satisfy the regulations in the UK or in the U.S.” she said.
Last year, SEC Chair Gary Gensler warned if the agency did not publish a final disclosure rule or the rule was overturned by the courts, American businesses would be at the behest of the EU’s climate disclosures. Without the SEC disclosure rule and a substituted compliance agreement with the EU, more than 3,000 U.S. companies would have to abide by the CSRD’s double materiality standard, according to a Deloitte estimate.
Clarification: The story has been updated to reflect Rob Fisher’s title as U.S. ESG leader at KPMG.
