SEC Climate Rules Are Weak, But They’re Progress: Mark Gongloff

Mario Cuomo once said politicians should campaign in poetry but govern in prose. President Joe Biden’s climate policy seems to have taken that to heart, often reading like a washing-machine repair guide: It gets a job done but isn’t exactly inspiring.

Consider the new climate-disclosure rules from the administration’s Securities and Exchange Commission. After two years of furious debate and lobbying, the SEC on Wednesday approved new requirements that public companies disclose their greenhouse-gas emissions, which may sound like a historic move. But they are riddled with monumental caveats.

For one thing, the SEC won’t make companies report Scope 3 emissions, those that aren’t under a company’s direct control but are related to how it does business, say in its supply chain or in the life of its products. Those make up 75% of the average company’s total planet-warming emissions. The agency also made reporting of Scope 1 and 2 emissions essentially voluntary. And smaller companies don’t have to report anything at all.

In case you’re not clear on these scopes, here’s an example: Let’s say I run a public company that makes Timothee Chalamet bobblehead dolls. The greenhouse gases produced by my bobblehead factory, offices and delivery trucks — all the stuff under my control — are Scope 1 emissions. The electricity I use to keep the bobblehead factory running produces Scope 2 emissions. Everything else related to my business — the plastic I source to melt down into tiny likenesses of Timothee Chalamet’s head, the private jet I take to visit bobblehead distributors, the landfills full of Timothee Chalamet bobbleheads — produces Scope 3 emissions.

Scope 3 emissions are more endemic to some industries than others. Banks, for example, are almost entirely Scope 3 producers because they’re not exactly smelting ore in the course of business. Ore smelters, on the other hand, mostly generate Scope 1 and 2 emissions. Scope 3 emissions are on the whole much more significant, but businesses complain they are also much harder to measure accurately.

Under the new SEC rules, not only is Scope 3 exempt from reporting, but Scope 1 and 2 need to be reported only if companies decide they’re “material,” or something that could cost the business and investors money.

This is far more leeway than the SEC had initially proposed when this process began in March 2022. But the threat of more stringent reporting requirements triggered trade groups, lobbyists and conservatives to flood the agency with complaints and demands for softer rules. Meanwhile, Republicans managed to politicize the very idea of environmental, social and governance (ESG) investing, making businesses much less willing to cooperate in any scheme that would force them to pretend to care about their impact on any other part of the world but their bottom line.

Given the high and rising likelihood that tougher rules would face court challenges, the SEC caved. The agency will still be sued, of course, but its lighter disclosure rules will stand a marginally better chance of surviving in court.

This fits a pattern. In response to furious opposition and the threat of legal action, the Biden administration is retreating on tougher Environmental Protection Agency standards for fossil-fuel plant emissions and likely will for automobile tailpipe emissions. Biden froze liquefied natural gas exports but only after they nearly doubled on his watch. He blocked new oil and gas development on Alaska’s North Slope and canceled leases in the Arctic National Wildlife Refuge, but only after approving ConocoPhillips’ Willow drilling project.

In the balance, Biden has arguably been the best president in US history for the climate. His bipartisan infrastructure bill and Inflation Reduction Act will unlock hundreds of billions of dollars to promote clean energy, transportation and building in this country. Even those accomplishments were watered down, to get Senator Joe Manchin and his crucial vote on board. Biden’s many other compromises on climate have been even more frustrating, but he has to balance the competing demands of unions, courts, businesses the economy and more, all in the name of getting something, anything done.

Meanwhile, many companies already report emissions voluntarily, including Scope 3. California has enacted tougher reporting requirements affecting 5,300 companies. Despite the political backlash, investors and consumers still increasingly care about the mark companies leave on the world, and they will keep holding them to account long after the anti-ESG fad fades away. Future carbon regulations could impact corporate profits, making emissions truly material, and companies may soon enough be forced to admit that.

All of this amounts to progress, however halting and frustrating. It’s still arguably too slow to feel confident the US will meet its goal of zeroing emissions by 2050 and fending off the worst effects of a warming planet. But it is far better than nothing — or the worse-than-nothing that a second Donald Trump presidency would bring. Sometimes prose is enough.

More From Bloomberg Opinion:

• ‘Dune’ Is a Climate Story We Can Truly Root For: Mark Gongloff

• Mexico Should Spend Billions on Water, Not Oil: JP Spinetto

• The EU Steers Carbon Markets to a Brighter Future: Lara Williams

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To contact the author of this story:
Mark Gongloff at mgongloff1@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net

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