SEC Climate Rule Won’t Demand Extensive Reporting from Small Businesses

In response to concerns about compliance costs, Securities and Exchange Commission (SEC) Chairman Gary Gensler stated that a proposed climate disclosure rule would not require public companies to ask small private suppliers to report on their carbon footprints.

Source: WSJ | Published on September 16, 2022

Shadow Footprint

Mr. Gensler said Thursday at a U.S. Senate oversight hearing that public companies reporting emissions linked to their supply chain, known as Scope 3 emissions, can estimate the carbon footprint of small suppliers while still complying with the proposed rule.

In March, the SEC proposed a rule that would require public companies to report their climate-related risks and emissions, including those from suppliers in some cases. During a public comment period, representatives for some small businesses expressed concern about the costly compliance burden. The rule is not yet final and may face legal challenges.

Senator Jon Tester (D-MT), a farmer, stated during the hearing that the "little guy" doesn't have time to sit in front of a computer cataloging fuel and fertilizer consumption. Mr. Gensler responded that this was not the rule's intent.

"That public company to which you sell has no obligation to ask you specifically," he said. "[Public companies] should estimate, or if they don't have an estimate, they should discuss how they're managing Scope 3."

"The intent, senator, is...whether it's the farm community or other community—if they're not public companies, they're not subject to this rule," Mr. Gensler said, adding that the SEC is "working through" the issue, which was raised in some of the agency's 14,000 comments.

A request for additional information was not returned by an SEC representative.

Small businesses from egg farmers to convenience store owners have expressed concern about the proposal and the cost burden it would impose on them. In response to questions about those costs, Mr. Gensler said on Thursday that the rule is intended to provide investors with more consistent information on climate-related risks faced by public companies.

According to a lawyer for the American Farm Bureau Federation, the organization is encouraged that the SEC has acknowledged its concerns.

Deputy General Counsel Travis Cushman said the federation hopes the SEC will issue a final rule that ensures "farmers will never be responsible for tracking and reporting their operational data to Wall Street."

The proposed rule's Scope 3 requirements, according to a manufacturing trade group, should be scrapped.

"The best way to protect these businesses is to remove Scope 3 from any final rule," said Charles Crain, the National Association of Manufacturers' senior director of tax and domestic economic policy. According to him, the proposed mandate prioritizes actual reported emissions over estimates and may disproportionately harm small and family-owned businesses.

According to the SEC, the plan will increase the cost of businesses complying with its disclosure rules from $3.9 billion to $10.2 billion. Mr. Gensler said on Thursday that the cost of complying with the climate rule would be in the "single-digit billions across the entire economy."