When regulators announced a plan to require businesses to disclose their carbon emissions and other climate data, they knew they were stirring up a political storm.
Companies have been fighting just as hard. A Wall Street Journal analysis of hundreds of comment letters on the proposed rules reveals a divide between businesses that believe climate disclosure can boost profits and those that see it as costly, complicated, and pointless.
According to the analysis, the dividing lines are frequently surprising, with companies taking opposing positions from their competitors and businesses sometimes at odds with their trade groups. A flood of money pouring into climate-related industries has further jumbled the equation.
Businesses typically band together to oppose new regulations. They disagree on almost every aspect of these rules, which the Securities and Exchange Commission is expected to propose in the coming months. Compliance costs, verification of emissions disclosures, and the proposed requirement for certain companies to report greenhouse-gas emissions from their suppliers and customers are all points of contention.
It puts the SEC in the uneasy position of facing a barrage of corporate criticism and potential lawsuits from businesses and governments, regardless of how the final rules are drafted. Some proposed requirements, such as the planned rules on reporting climate data in financial statements, are being reconsidered by the regulator.
United Airlines Holdings Inc. told the SEC that it “applaud[ed] and supported[ed]” mandated climate disclosures, including Scope 3 emissions produced by suppliers and customers using a company’s products.
The airline’s CEO sits on the board of the Business Roundtable, which advocated for the SEC to withdraw the Scope 3 proposal. United did not respond to a request for comment.
According to Maria Ghazal, senior vice president of corporate governance at Business Roundtable, the majority of the organization’s members voluntarily report emissions.
Some companies disclose Scope 3 emissions, but she believes this is burdensome for businesses and will not provide useful information to investors. “Scope 3 emissions are, by definition, outside of a company’s direct control, making them nearly impossible to measure and even more difficult to estimate,” she explained.
Agriculture, which is strongly opposed to the rules through state trade associations, is one of the most vocal opponents. The oil, gas, and manufacturing industries are diverse, but they all want to avoid legal liability for information they claim they cannot control, which is one of the most pressing concerns among businesses. Investors generally favor requiring companies to report climate data in a standardized, comparable manner.
Opponents of new regulations almost always raise the issue of cost. Consultants, auditors, and a variety of startups have made significant investments in climate disclosures, anticipating a windfall of fees from companies that comply with the new rules.
Others argue that the SEC issuing clear rules would be an improvement over the current situation. Companies now submit data to a variety of private rating firms, which request various numbers in various formats in order to calculate a company’s climate footprint.
“This proposal could actually be a cost saver for large companies,” said Taylor Francis, co-founder of Watershed Technology Inc., a company that calculates climate data.
Businesses aren’t thrilled with the prospect of paying firms to generate the figures. “Pouring money into consulting firms’ pockets is not the only way to gain assurances for disclosures of greenhouse-gas emissions,” said Johnathan Josephs, regulatory affairs manager at the Association of Equipment Manufacturers.
The rules are especially daunting because they require some businesses to calculate data they have never calculated before, such as the carbon footprint of distant suppliers and the commutes of their employees.
Even the SEC does not appear to know how much it will cost to comply. The regulator estimated in a draft rule last year that the cost for a medium to large public company would be $640,000 in the first year of the new rules, and $530,000 each year after that. These figures have been widely cited in the rule-making debate.
However, those figures should not be considered a true cost estimate, according to a source close to the SEC, and were included solely to satisfy a rule-making requirement for regulators. According to the person, the SEC does not know how much the rules will cost. This makes estimating the impact of the proposed rules difficult for both supporters and opponents.
According to a survey of nearly 40 businesses conducted by sustainability consulting firm ERM, companies that already voluntarily disclose climate information spend an average of $533,000 per year. Companies that do not currently track climate-related data may face higher costs, according to Mark Lee, ERM’s head of ESG.
The new rules may require companies to include climate disclosures in their SEC regulatory filings, and some of that new information may need to be audited. The SEC estimates that it will cost businesses an average of $15,000. Critics argue that the figure is too low.
Nutrien Ltd., the world’s largest fertilizer producer, informed the SEC that its auditors estimated a $70,000 to $225,000 increase in audit fees per year. Nutrien did not respond.