Seventy-five institutional investors with a combined US$4.7 trillion in assets under management have urged the US Securities Exchange Commission (SEC) to require full emissions reporting as part of the regulator’s upcoming climate disclosure rules.
In a letter to SEC chair Gary Gensler, the investors, led by shareholder advocacy group As You Sow, said that concerns about climate change and the “systemic and material risk it builds into the global economy” were increasing.
The group said that the regulator must require verified Scope 1-3 value chain emissions reporting in its new rules with a specific emphasis on Scope 3 reporting.
“Reporting of greenhouse gas emissions is the bedrock of sound investor decision-making on climate and transition risk,” wrote As You Sow president and chief counsel Danielle Fugere.
“The SEC has a critical role to play in ensuring that full emissions reporting is timely, comparable, complete, and accurate.”
Ms Fugere noted that Scope 3 emissions were the largest source of emissions for the majority of companies, including those with carbon-intensive business models, and presented the most significant opportunities to influence emissions reductions.
“Failure to require disclosure and reporting of Scope 3 emissions is therefore likely to result in the largest source of emissions remaining unaccounted for in company reporting and unaddressed in company activities,” she said.
“This in turn impacts a wide variety of actors that rely on accurate and consistent emissions information including investors, banks, insurers, and policy makers.”
The group said that the current partial reporting of Scope 3 emissions can be misleading, as investors may assume that emissions are being reported in full when just a fraction of the emissions are actually being disclosed.
Only requiring the reporting of Scope 1 and 2 emissions may drive companies to outsource emissions to supply chains to give the illusion of reducing emissions according to the group.
“As the financial system moves to address climate risk, the lack of adequate data is increasingly clear,” Ms Fugere said.
“Reporting of Scope 1 and 2 emissions leaves gaping information holes that banks, insurance companies, asset managers, governments, investors, and innovators must traverse, impeding action and sound decision making.”
The 75 investors have requested that the SEC require tabular disclosure of estimated Scope 1, 2 and 3 greenhouse gas emissions assured at the reasonable assurance level using the GHG Protocol framework.
The group suggested that Scope 1, 2 and 3 emissions be disclosed in annual 10-K company reports within the first year, including reasonable assurance for Scope 1 and 2 emissions.
In the second year, reasonable assurance would start for Scope 3 emissions while a safe harbour from liability for Scope 3 reporting may also apply to allow for the creation of sound systems for reporting and for auditing firms to increase their expertise and capacity.
“Investors need robust, complete, and comparable disclosure of emissions data to determine which companies are aligning their business activities with Paris targets, and thereby minimising transition risks – and which are failing to prepare for the rapidly accelerating and economy-wide transition,” said Ms Fugere.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
