The climate-related disclosure rule proposed by the Securities and Exchange Commission (SEC) will eventually pass but not before undergoing some changes, practitioners speaking at Compliance Week’s virtual ESG Summit predicted.

Implementation of the rule might also be delayed if companies and trade groups follow through on threats to block it with litigation.

Despite foreseeing changes and delays, speakers at the environmental, social, and governance (ESG) event urged attendees to continue preparing for the SEC’s potential mandate as if climate-related disclosures will be required for the 2023 fiscal year for large accelerated filers, as currently proposed.

“ESG is a process, not an outcome,” said William Nelson, general counsel of the Investment Adviser Association, during a session on regulatory developments. “If you wait to prepare until the rule is finalized, then you’re too late.”

Chris McClure, a partner at accounting, consulting, and technology firm Crowe, called ESG “an evolution of risks you have as an organization.” He advised firms to “make ESG part of your long-term plan.”

Compliance consultant Douglas Hileman, who served as the conference’s chair, compared the potential legal fight over the climate-related disclosure rule to another controversial SEC policy: the conflict minerals rule.

“There are a lot of parallels between the two,” he said. “It’s like déjà vu all over again.”

The conflict minerals rule, adopted by the SEC in August 2012, requires companies to disclose information each calendar year on the source of tantalum, tin, gold, and tungsten used in their products. Those minerals are known to have funded violent conflict in the Democratic Republic of the Congo (DRC) and adjoining countries.

The National Association of Manufacturers, U.S. Chamber of Commerce, and Business Roundtable responded to the rule by filing a lawsuit in federal court, claiming forcing companies to disclose whether they sourced those metals from the DRC was an unconstitutional violation of their right to free speech. A U.S. appeals court ruled in 2014 that portions of the rule were indeed unconstitutional. The reconfigured rule took effect in 2017.

The SEC indicated in its spring rulemaking agenda it intends to approve the climate-related disclosure rule this year. A fact sheet accompanying the rule indicated large accelerated filers would have to begin making climate-related disclosures for fiscal year 2023; accelerated filers and nonaccelerated filers for FY2024; and smaller reporting companies for FY2025.

It is likely a lawsuit would delay the rule’s implementation. The Chamber of Commerce, which could sue in federal court like it did with the conflict minerals rule, said in June the climate-related disclosure rule as currently crafted “exceed(s) the SEC’s lawful authority and [is] vast and unprecedented in [its] scope, complexity, rigidity, and prescriptive particularity.”

The SEC received thousands of comments from industry, trade groups investors, and individuals expressing support and opposition to the rule.

Culled from those comments are main areas of concern for companies and trade groups: Scope 3 emissions and the rule’s concept of materiality, said McClure.

Disclosing Scope 1 (direct) and Scope 2 (indirect but still in an entity’s control, like energy use) greenhouse gas emissions hasn’t drawn as much negative attention from commenters. Measuring and disclosing your organization’s Scope 3 emissions, which are generated by a company’s value and supply chain, is receiving more pushback, Nelson said.

“Scope 3 is the one people agree needs to be looked at,” Nelson said.

Commenters opposed to disclosing their Scope 3 emissions have asked the SEC to delay implementation of that section of the rule so they have more time to prepare. It will be difficult to obtain accurate Scope 3 emissions data from all their partners and vendors, commenters said.

The rule would also define materiality when the aggregate dollar amount of the impact is greater than 1 percent of the related financial statement line item. This 1 percent “bright line” for line-by-line materiality has drawn a lot of concern from the business community, Nelson said.

“It’s a very difficult threshold to meet,” he said.