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GM, Goldman Press SEC’s Gensler on Indirect Emissions in 10-Ks

June 27, 2022, 9:00 AM

Goldman Sachs CEO David Solomon and General Motors CEO Mary Barra are among the top executives who’ve met with SEC Chair Gary Gensler over his agency’s plan to make companies disclose indirect greenhouse gas emissions as part of new climate reporting rules.

Gensler has met with dozens of senior corporate leaders at least once, and some more often, since the Securities and Exchange Commission issued a sweeping proposal in March intended to help investors evaluate the risks public companies face from climate change, according to agency records.

Gensler has expressed some concern that an SEC requirement to use companies’ annual 10-Ks to report Scope 3 emissions—which come from supply chains, use of a company’s products, and other indirect sources—could jeopardize the agency’s broader climate reporting initiative. Companies say Scope 3 emissions are difficult to calculate, while Republican officials and business groups have hinted at litigation that could tie up climate reporting rules in the courts.

Officials from companies like Home Depot and Bank of America often made their cases to Gensler as part of lobby groups such as the Bank Policy Institute and Retail Industry Leaders Association. Barra met with Gensler both on her own and as part of a larger group, according to SEC records.

“It’s really important that this stuff works and it’s practical and actually delivering on the objectives,” said Lauren Anderson, senior vice president and associate general counsel for regulatory affairs at BPI.

A representative for Gensler didn’t respond to requests for comment.

Corporate Costs

Compliance with the SEC’s proposed Scope 3 disclosures would cost companies millions of dollars, the U.S. Chamber of Commerce said in a recent letter to the agency. An unidentified “well-known” company estimated expenses of $15.6 million over five years, the Chamber said.

Scope 3 covers everything from employee travel to business partners to a firm’s lending and investments—unlike Scope 1 and 2 emissions from a company’s direct operations and power usage. The SEC’s proposal would require companies to disclose Scope 1 and 2 data, but only report Scope 3 information if it’s material to their business or part of a climate goal.

But companies that omit Scope 3 emissions from public filings or report them incorrectly run the risk of litigation or reputational harm from activist investors and climate advocates who might view the data as material and essential for them to know accurately.

The SEC’s Scope 3 plan would unnecessarily burden companies with disclosures that the typical investment analyst wouldn’t find useful, said Lawrence Cunningham, a George Washington University Law School professor, who studies corporate governance.

“It doesn’t do much for the investor,” Cunningham said. “It does a wonderful thing for the activists.”

Goldman Sachs Talks

Goldman Sachs Group Inc. has limited the Scope 3 data it discloses as part of its total emissions calculations in its sustainability report to statistics about business travel. The firm reported emissions intensity metrics that factor in some Scope 3 emissions from its financing and investing separately in the report. Goldman Sach’s most recent annual 10-K filing with the SEC didn’t include any of this information.

The SEC’s push to move climate reporting to 10-Ks—which have greater visibility and more safeguards against inaccurate disclosures—comes as the agency cracks down on greenwashing and other dubious claims about environmental, social and governance (ESG) investment products. The agency currently is probing whether some Goldman Sachs products didn’t align with the ESG metrics that the investment bank promised in marketing materials, Bloomberg News reported.

Goldman Sachs executives met with Gensler or members of his staff at least three times about the climate disclosure proposal. Solomon attended one of the meetings with Gensler. That gathering had more than two dozen senior bank executives, including Bank of America Corp. CEO Brian Moynihan and State Street Corp. CEO Ronald O’Hanley, according to an agency memorandum.

A Goldman Sachs spokesperson declined to comment.

BPI’s Anderson, who assisted with the group meeting that included Goldman Sachs, State Street, and BofA, said Scope 3 emissions should be left out of securities filings until the reporting becomes more sophisticated. Scope 3 poses unique problems for lenders, she said in a recent comment letter to the SEC.

“For example, suppose a trucking company purchases fuel from an oil and gas company and in turn provides transportation services to a retail establishment. If a banking organization lends to each organization in this value chain, the same burning of fossil fuels would be counted three times as part of its Scope 3 financed emissions,” Anderson said in the letter.

GM Advocacy

Barra and other General Motors Co. executives had their own meetings with Gensler and his staff. At least one of the meetings involved Scope 3, according to an agency memorandum.

GM’s annual sustainability reporting has Scope 3 data, including statistics on emissions from the cars they manufactured. None of it made the company’s most recent 10-K.

The SEC’s plan to have companies put Scope 3 disclosures in 10-Ks would hamper companies’ ability to provide accurate and reliable data because up-to-date information on those emissions might not be ready when the filings are due, GM said in a recent letter to the agency.

“GM supports the SEC’s efforts to drive climate disclosures that will allow investors to make decisions using data that is consistent and comparable between companies, and we appreciate the opportunity to discuss the best way to achieve these goals through ongoing dialogue,” company spokesman James Cain said.

Scope 3 also was brought up at a meeting Gensler had with executives who included chief financial officers of Home Depot Inc., Levi Strauss & Co., and Best Buy Co., according to an SEC memorandum. The Retail Industry Leaders Association, which helped with the meeting, said in a recent letter to the SEC that the agency should make Scope 3 emissions disclosures voluntary.

CalPERS Meetings

Corporate executives aren’t the only people meeting with Gensler. He’s also met with California Public Employees’ Retirement System CEO Marcie Frost at least twice, according to SEC records.

A CalPERS representative declined to comment, but the pension fund recently told the SEC in a letter that all companies should disclose Scope 3 emissions.

CalPERS has pushed companies to disclose Scope 3 emissions before. Exxon Mobil Corp., for example, began disclosing Scope 3 data last year on its website after the pension fund filed a shareholder proposal requesting the information.

The SEC is planning to finalize its climate disclosure rules by October, according to the agency’s latest rulemaking agenda. But the five-member commission will have a different makeup that could keep Scope 3 disclosures out of the regulations.

Democratic Commissioner Allison Lee, the SEC’s biggest Scope 3 advocate, is on her way out this summer. Jaime Lizarraga, a senior adviser to House Speaker Nancy Pelosi (D-Calif.), recently was confirmed to succeed her. He hasn’t commented publicly about Scope 3 reporting.

The prospect of litigation likely is weighing heavily on Gensler and his fellow commissioners as they work on finalizing the regulations, said Cynthia Williams, a University of Illinois College of Law emerita professor, who studies securities law.

“Their task, and they seem to be approaching it seriously, is to try really carefully to hear from all sides,” Williams said. “And then their administrative law requirement is that they respond to significant concerns, that they respond to significant letters. That’s going to be interesting.”

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com, Melissa B. Robinson at mrobinson@bloomberglaw.com