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Why the SEC’s Climate Rule Won’t Work

Next on our list of misguided, burdensome regulations is a Securities and Exchange Commission misstep: climate rules that would force manufacturers to meet impossible deadlines and disclose sensitive information, without doing anything to protect investors. 

The background: Last year, the SEC proposed a new rule that would require companies to disclose a massive amount of information, much of it impractical to collect or immaterial to investors.

  • First, the proposed rule requires qualitative descriptions of companies’ climate-related risks and any efforts to respond to those risks, including internal metrics and confidential strategies.
  • Second, it mandates quantitative reporting of companies’ greenhouse gas emissions, while compelling companies to conduct quantitative climate impact analyses within their consolidated financial statements.
  • The result? An unworkable framework that imposes uniform mandates that do not align with manufacturers’ efforts to respond to climate change—but do impose an enormous burden on manufacturers across the country.

The response: The NAM has laid out a series of necessary changes that the SEC must make to reduce compliance costs and limit liability risks associated with the rule’s requirements. Specifically, the NAM is calling on the SEC to do the following:

  • Strike disclosure of Scope 3 emissions, which requires companies to track emissions data from suppliers and customers throughout the supply chain. While some manufacturers are already working to understand these emissions, the data collection, estimation and reporting methodologies are still evolving—and the proposed mandate could have a disproportionate impact on small businesses swept into the reporting regime.
  • Rescind accounting changes that would require climate impact analyses of companies’ consolidated financial statements on a line-by-line basis.
  • Delay annual GHG emissions reporting, granting manufacturers more time to collect and verify data.
  • Adjust the climate-related risk disclosures and Scope 1 and Scope 2 emissions reporting requirements to make the provisions less prescriptive and more aligned with existing company practices.
  • Fine-tune the guidelines for reporting on climate-related goals to avoid penalizing companies that set ambitious targets.
  • Remove requirements that companies disclose competitively sensitive information about the internal tools they use to understand and plan for climate risks, scenarios and activities.

Read the full story here.

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