SEC moves forward with ESG reporting proposal

The Securities and Exchange Commission (SEC) voted 3-1 to propose rules that standardize public companies’ reporting on climate risk. The proposal, “makes it easier for an apples-to-apples comparison on key metrics and provides the most significant update on climate-related financial risk since SEC’s 2010 guidance.”

If the proposed rules are enacted as presented, companies would have to annually report their Scope 1 direct and Scope 2 indirect greenhouse gas (GHG) emissions. Reporting on Scope 3 emissions – indirect emissions from supply chains – would only be required if they are material to operations or if companies have set reduction targets.

“While we estimate that only 10 percent of NAFEM members are publicly traded, environmental, social and governance (ESG) criteria continue to grow in importance,” said NAFEM’s Vice President of Regulatory & Technical Affairs Charlie Souhrada, CFSP. “Publicly funded projects, or even operators looking to hit social responsibility/ESG targets might require this type of information from suppliers, if they haven’t already.”

For perspective, more than 90 percent of S&P companies issued ESG reports in 2020, including McDonald’s, Wendy’s, YUM! Brands and many others. These reporters often require suppliers to report emissions on the CDP platform. Also, McKinsey & Company’s The role of ESG and purpose offers solid background on the topic.

During a recent National Association of Manufacturers (NAM) webinar on the subject, one of the speakers speculated that the SEC’s proposal would add 25-30 pages to companies’ 10-K filings and untold thousands of dollars in additional auditing and tax preparation work.

Regardless of the SEC’s final ruling, mandatory ESG reporting is gaining momentum nationwide. There is a proposal on the docket in Maryland to establish a net-zero GHG emissions goal, which several states already have. And in Pennsylvania, there is a proposal to tax or fine carbon dioxide (CO₂) emissions.

The comment period on the proposed SEC rule will remain open for 30 days after publication in the Federal Register, or 60 days after the March 21 date of issuance and publication on sec.gov, whichever is longer. NAFEM will continue to follow this issue and push back as appropriate.