Since the SEC proposed its climate disclosure rule in March 2022, the rule has been subject to significant public criticism and comment--particularly from business groups and conservative legislators who have questioned the scope of the proposed rule, as well as the authority of the SEC to promulgate it. Much of this criticism has focused on the proposal that a company disclose Scope 3 greenhouse gas emissions, which requires that a company report not only its own direct emissions (and indirect emissions from power consumption), but the emissions from both upstream and downstream sources in its value chain (e.g., for a car manufacturer, the emissions generated by the mines that produce the metal and all of the emissions from the cars produced). Indeed, this aspect of the proposed rule even received considerable pushback from politicians and corporations otherwise in support of the SEC's climate disclosure rule, for a variety of reasons, including the difficulties inherent in this calculation. Notably, it has now been reported that “[i]n the latest draft of the landmark rule, the SEC has dropped a mandate that certain large companies report to investors information about the emissions generated by their suppliers and customers, known as Scope 3 . . . .” 

Overall, this development is unsurprising--as noted above, this particular aspect of the rule had been the subject of extensive criticism, from both the expected sources and others. But the source of this information--an individual knowledgeable of the inner workings of the SEC “who was granted anonymity to discuss non-public information”--suggests that Chairman Gensler's SEC may have floated this change to the proposed climate disclosure rule as a trial balloon in order to gauge public reaction. If this development is met with general approval, then it seems more likely to proceed. On the other hand, if environmental lobbying groups treat this weakening of the SEC's proposed climate disclosure rule as a betrayal, or conservative groups remain steadfast in their opposition despite this change, the SEC may be less inclined to actually remove the Scope 3 GHG emissions requirement from the proposed climate disclosure rule.

Ultimately, the key development that both industry and politicians are awaiting is the SEC's promulgation of the final climate disclosure rule. That is expected within the next several weeks (although it has been frequently postponed before). When the SEC finally publishes the rule, there will finally be clarity with respect to expectations--even though the rule itself will likely be challenged via legal action, just as California's climate disclosure laws were a few weeks ago.