How well can the SEC disclose its carbon footprint? An opinion piece on the environmental, social, and governance challenges of Trump’s 2022 climate disclosure proposal

Carbon footprint is a measure of how much pollution a company produces. Since the SEC first proposed climate disclosure rule, Scope 3 has been a subject of heated debate.

There has been a charge by Republicans that investing in ESG takes into account environmental, social, and governance factors. The US faces a chance to get Donald Trump back in office as he rolled back dozens of environmental regulations during his first term, so the fate of the book is dependent on the outcome of elections this year.

The final rule is a watered-down version of a proposal the SEC put forth in 2022 that sparked a flood of opposition from industry groups and anti-ESG Republicans. The SEC chose a fight with both Republicans and climate activists, rather than placating everyone with a weaker rule.

The industry groups argued that there is no suitable way to measure those emissions. California requires publicly and privately-held companies that make $1 billion a year or more in revenue to report all of their greenhouse gas pollution, as well as those indirect Scope 3 emissions.

As a result, environmental advocates and trade groups that pushed back against the SECs initial proposal are all notching a partial victory. The new rules give a lot of transparency to the companys environmental impact. Climate advocates, meanwhile, say the rule can still be strengthened.

Gary Gensler, chair of the SEC, said that investors get to decide which risks they want to take so long as companies raising money from the public make what President Franklin Roosevelt called complete and truthful disclosure. Gensler added that the SEC has “an important role overseeing the disclosures at the core of that basic bargain.”

“Whether climate disclosure at a global level will ever have the greenhouse gas emissions reduction effect we need, and whether it will have that effect fast enough, I think is still an open question,” says Cynthia Williams, a law professor at Indiana University Maurer School of Law. “But what this disclosure regime can do is cause companies to take climate governance more seriously.”

Williams of Indiana University thinks that investors will be able to see which companies are futureproofed. “The SEC is regulating to meet investor demand. And investors have been asking for this information — institutional investors, in particular — for at least a decade, probably longer.”

Hester Peirce, an SEC commissioner who was appointed by Donald Trump, warned about the new disclosure rules.

The SEC’s Comeback: Protecting the U.S. Economy through Taxes, Regulation, and Disclosures of CO2 Emissions

However, the rules don’t go as far as proponents had hoped. Regulators should also force companies to tell how much climate pollution is coming from their supply chain, investor groups said. Most of the businesses’ carbon footprint is accounted for by Scope 3 emissions.

Kathy Fallon, director of land and climate at the Clean Air Task Force, says the SEC rule is a step in the right direction. “But now, it’s so watered down that it’s like going out to buy a house and you only get the disclosures that the seller wants to share with you, or that they think are relevant to you.”

Gensler said it is important for the U.S. to have its own standards “based on U.S. law, based on the economics of our markets, based upon what investors here are using to make investment decisions.”

The SEC is accused of abuse of discretion and arbitrary rule-making by a coalition of ten states. In addition to these states, it includes Alaska, New Hampshire, Oklahoma, South Carolina, and Wyoming.

The SEC has a new rule that congressional Republicans are trying to overturn. The Congressional Review Act allows Congress to overrule agency actions, something that Representative Bill Huizenga and Senator Tim Scott intend to do.

“Investors should realize this overreach by the SEC will significantly hurt our economy while serving as boon for special interests and far-left activists,” Huizenga said in a statement yesterday.