SEC’s proposed greenhouse gas emissions disclosure rule

SEC’s proposed greenhouse gas emissions disclosure rule

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SEC’s proposed greenhouse gas emissions disclosure rule

By James D. Bradbury, PLLC

The Securities and Exchange Commission’s (SEC) on March 21 issued for public comment a proposed rule mandating greenhouse gas (GHG) emissions disclosures for certain publicly traded companies. The rule creates three categories of emissions: 1) direct; 2) energy use; and 3) supply chain. While the rule may not apply to all cattle and dairy producers, the rule may have implications for certain publicly traded companies whose products involve or come from livestock, including beef and dairy cattle.

Under the proposed rule, Scope 3 emissions must be disclosed if they are “material” or if the company has set a GHG emissions reduction target or goal that includes Scope 3 emissions. Those who oppose the proposed rule view it as a way of bypassing legislation to require companies to report certain climate change information through their financial reports. The impacts to farms and ranches could be significant.

One of the more troublesome aspects of the rule include the requirements that registrants gather information from their “value chain” as it relates to climate-related risks and impacts. “Value chain” is broadly defined to include upstream supplier activities, which has the potential to impact nearly every farmer and rancher, irrespective of size, who at some point finds themselves in upstream or downstream activities of another company’s value chain.

Another problematic impact of the proposed rule is the higher costs to registrants to comply with the rule that will inevitably be passed through to agricultural producers. In addition, the reporting requirements would take valuable time away from the business of farming and ranching, as producers are required to track, control, and report emissions.

Additionally, there are privacy concerns over the reporting of location data for GHG emissions. If registrants are required to publicly disclose data about sources of GHG emissions, this may cause an inadvertent disclosure about a specific farmer at a particular location. Courts have routinely protected farmers from disclosure of their personal information, understanding that many agricultural producers live on their farm or ranch.

In proposing the rule, the SEC requested public comment as to the rule and specific questions concerning the rule. The public comment period ended June 17, and many groups, including agriculture groups, provided comment in opposition to the rule. Among the changes these groups requested included eliminating the “value chain” concept from the rule, removing the Scope 3 emissions disclosure requirement or create a carve-out for the agricultural industry, eliminating any location data disclosure requirements, and requesting guidance with respect to how the proposed rule will work concerning the 2022 Consolidated Appropriation Act’s prohibition on mandatory GHG emissions reporting for manure management systems.

The impacts of the proposed rule, if not changed, could be serious for farms and ranches, with smaller operations bearing the heaviest burden from the rule’s requirements. This will certainly be an important issue to monitor and stay on top of in the months ahead. It is anticipated that the SEC plans to release the final rule by the end of 2022.

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