The Securities and Exchange Commission (SEC) is reportedly considering pulling back on key elements of its proposed climate-related disclosure rule following pushback from investors, companies, and the public.
The SEC is still planning to finalize its sweeping mandate this year requiring public companies issue climate-related disclosures in their financial statements. Those disclosures would attempt to quantify the costs to their business caused by climate-related events like floods, fires, and drought as well the effect of environmental regulations on their bottom line. The regulator is also eyeing public companies disclose greenhouse gas (GHG) emissions their business generates.
Among changes being considered, according to a report from the Wall Street Journal on Friday, is easing of one of the more controversial details of the proposed rule: the bright-line test that if climate-related costs and risks affect more than 1 percent of a line item in a financial report, those costs and risks must be disclosed.
The SEC set its 1 percent threshold in an attempt to ensure climate-related risks would not be underreported.
This bright-line test has been the subject of much debate among commenters, including the compliance and auditing communities. Overall, the SEC has been “taken aback by the strength of opposition to their financial-reporting proposals,” according to the report.
After reviewing comments, the SEC is considering raising the 1 percent threshold, “using different percentages depending on the financial item in question or eliminating a bright-line test altogether,” the Wall Street Journal reported, citing unnamed sources close to the agency.
The SEC originally scheduled to release the final version of the rule before the end of 2022, but that rollout was delayed.
Another controversial aspect of the proposed rule—a requirement to report Scope 3 GHG emissions generated by a firm’s vendors and supply chain—was the focus of a Politico report published Saturday.
“[SEC Chair Gary] Gensler’s lingering legal concerns about the draft Scope 3 requirements indicate that the SEC—nearly a year after proposing the rule—Is still grappling with what to do about one of the most aggressive parts of the plan,” the report said.
Editor’s note: This story was updated Feb. 6 to cite additional reporting from Politico.
No comments yet