By Isla Binnie
NEW YORK (Reuters) – Investors will be asking companies for data on indirect greenhouse gas emissions that new U.S. financial disclosure rules exclude, the International Sustainability Standards Board’s (ISSB) chair told Reuters.
The U.S. Securities and Exchange Commission (SEC) earlier this month dropped a requirement for companies to disclose so-called Scope 3 emissions from rules it had drafted on climate change reporting.
The decision deviated from voluntary standards developed by ISSB, which is part of the International Financial Reporting Standards Foundation, the world’s accounting standards setter.
Scope 3 emissions account for greenhouse gases, such as carbon dioxide, released in the atmosphere from a company’s supply chain and the consumption of its products by customers. For most businesses, Scope 3 emissions represent more than 70% of their carbon footprint, according to consulting firm Deloitte.
“Investors say Scope 3 is important,” ISSB Chair Emmanuel Faber said in an interview.
“If all companies report Scope 3, absent local regulation but because they are being asked by investors and banks, the result is (that information) is out there.”
Other jurisdictions, including the European Union and the state of California, have passed laws that will require companies to disclose Scope 3 emissions.
The SEC said that Scope 3 emissions-reporting requirements would burden companies and were not yet reliable. The regulator acknowledged that some companies will end up making these disclosures for other jurisdictions.
“I don’t think the (SEC) rule is saying Scope 3 is not important, it is saying the methodologies still need to evolve and because of the uptake around the world this will be a matter of evolution,” Faber said.
A SEC spokesperson declined to comment.
Some of the companies and trade groups that sent more than 16,000 comment letters in response to the SEC’s draft climate rules urged the regulator to accept disclosures based on ISSB’s recommendations as an alternative to the SEC’s own rules.
In a further move away from the SEC’s more prescriptive draft, the regulator will also allow large companies to determine whether emissions from their own operations and the power they purchase — so-called Scope 1 and Scope 2 — constitute material information that investors need to have.
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