As manufacturers in the U.S. brace for looming mandatory climate disclosure rules from the Securities and Exchange Commission, many of the same companies are readying for similar regulations from the European Union, according to The Wall Street Journal (subscription).
What’s going on: “The Corporate Sustainability Reporting Directive, or CSRD, will likely require at least 10,000 companies outside the EU to make and independently verify a number of sustainability disclosures, and about a third of those are in the U.S., according to estimates by financial data firm Refinitiv provided to The Wall Street Journal.”
- The NAM has been pushing back on the expected SEC rules, which would be overly burdensome for manufacturers, forcing publicly traded companies to disclose their greenhouse gas emissions (including so-called “Scope 3” emissions attributable to their suppliers and customers), incorporate climate reporting into their financial statements and divulge information about their plans for responding to climate-related risks.
- The NAM has also called on the SEC to protect small and privately held businesses from the downstream impacts of the proposed rule.
Why it’s important: If both the SEC and EU rules—which are set to go into effect as soon as January 2025—become law, there’s high potential for overlapping and contradictory mandates.
- Dual requirements could mean exorbitant financial costs for manufacturers and confusing disclosures for investors.
- “[D]ata from Refinitiv, which is part of London Stock Exchange Group PLC, indicates there are nearly 10,400 foreign companies that have an EU stock listing and more than 100 companies that aren’t listed in the EU but have more than €150 million in local revenue. Of the total number of companies Refinitiv has identified, 31% are American, 13% are Canadian and 11% are British.”
- The EU rules include 82 annual disclosure requirements, each with its own measurements and explanations, and obligate businesses to have a third party audit their data.
Lots of cost: Annual administrative costs for companies to report under the EU regulations can start in the tens of thousands of euros and increase from there, as can the separate yearly price tag of having disclosures audited.
- Companies in the U.S. estimate the cost of compliance with the SEC rules will exceed $750,000 in the first year alone, according to another article from The Wall Street Journal (subscription).
- It’s why the NAM has called on the SEC to “more appropriately balance the significant costs and minimal benefits” associated with the rule.
The last word: Said NAM Senior Director of Tax and Domestic Economic Policy Charles Crain: “The NAM has consistently called on the SEC to significantly revise its proposed climate disclosures rule, which would require manufacturers to create entirely new compliance systems at extraordinary cost.”
- “Overlapping regulatory frameworks that span multiple countries will only add to this burden.”