Whether the government requires it or not, greenhouse gas disclosures are here to stay 

Last week, the U.S. Securities and Exchange Commission (SEC) released its long-awaited final rule requiring publicly traded companies to report certain climate risks and greenhouse gas emissions as part of their financial risk disclosures. 

The rule significantly cut back from the disclosure requirements in the proposed draft, dropping the requirement for Scope 3 emissions reporting (related to corporate supply chains and customers) and linking Scopes 1 and 2 emissions to company determinations of materiality. The SEC emphasizes that the rule is “advancing the Commission’s mission to protect investors, maintain fair, orderly, and efficient markets, and promote capital formation by providing disclosure to investors of information important to their investment and voting decisions.”  

Though the SEC had already recognized that climate change can affect corporate bottom lines because of the transition away from fossil fuels in a 2010 guidance, the current rule is designed to formalize the requirement with specific data. Having numerical greenhouse gas requirements, it says, would help investors assess a company’s “exposure to and management of its climate-related risks.”  

Since the draft rule dropped in 2022, it has faced a barrage of objections to requiring numeric greenhouse gas emissions information on grounds of relevancy and expense, as well as questions on whether it aligns with the SEC’s statutory charge.   

But this rule didn’t come out of nowhere.   

Major investors have increased demands that companies be more specific in their risk profiles. Even major fossil fuel companies have acknowledged for some time that such financial risks exist, and have extensively reported on said risks in SEC filings. Following a 2016 investigation into its alleged failure to adequately disclose climate financial risk, for example, Exxon Mobil reduced its estimate of recoverable oil reserves in a subsequent filing by 3 billion barrels 

Lawmakers introduced legislative proposals to require the same information in 2019; in his widely read letter to businesses in 2021, Larry Fink, the head of financial services firm Blackrock, said such information is necessary to prudent investment.  

Even though the final rule weakened some of the original reporting requirements, the rule will still face legal challenge. Of particular concern for those who have favored such a rule is the U.S. Supreme Court’s enshrining of the “major questions doctrine” in last year’s ruling in West Virginia v. U.S. Environmental Protection Agency. Suing over federal agency rulemaking is now almost de rigueur among state attorneys general eyeing higher office.  

Certainly, many lower court judges, and this Supreme Court, seem receptive to the idea that greenhouse gas emissions are unrelated to the SEC’s mission. The opposing reasoning — that the SEC’s core function is protecting the integrity of the market, which requires it to gather information on financial risk from greenhouse gas emissions or anything else — might be legally sound. But this argument may be doomed by increasing political and legal attacks on even remotely progressive ideas.  

While political bluster may win the battle and even affect the law, it will likely not win this war. Even if the Supreme Court strikes down the rule as beyond the SEC’s powers, the information it was designed to elicit is already here and will continue to be made public. The European Union is far ahead of the U.S. on climate disclosure requirements, and many U.S. companies will be forced to meet those requirements. California is also preparing to require specific emissions disclosures. Investors are not dropping their demands. 

Firms are even finding cost-effective ways to report Scope 3 emissions, and new companies and technologies have sprung up to support companies that need help. For instance, Persefoni, created in 2020, claims its software “enables companies […] to easily meet stakeholder and regulatory climate disclosures.”  

Most greenhouse gas emissions are easily calculated (such as emissions from fuel use or the greenhouse gas profile of electricity used), and lingering uncertainty over more difficult calculations will eventually settle into a common practice. Many companies already use the Task Force on Climate-Related Financial Disclosures rubric, one of the bases for the SEC’s rulemaking. And, lest we forget, the SEC still requires publicly traded companies to report any material financial risk.   

The Supreme Court may find that the SEC doesn’t have the power to require this specific reporting of emissions, but the cat is already out of the bag.  

Companies can — and do — produce this information, and investors are demanding it, indicating it is material almost by definition. Companies will continue to report more and detailed greenhouse gas emissions information over time, even if the rule goes by the wayside.  

Victor B. Flatt, the Coleman P. Burke Chair in Environmental Law at Case Western Reserve University School of Law, teaches climate disclosure in the private sector, and is a member scholar of the Center for Progressive Reform .