US SEC adopts climate rule that divides opinion despite dilution

By Isla Binnie and Ross Kerber

(Reuters) -Wall Street's top regulatory body voted on Wednesday to adopt a rule that would require public companies to disclose certain climate-related risks, a first-of-its-kind regulation that was watered down from an early draft and was called too lax by some and too strict by others.

First proposed in draft form in March 2022, the U.S. Securities and Exchange Commission (SEC) rule aims to set a standard for how companies communicate with investors about greenhouse gas emissions, weather-related risks, and how they are preparing for the transition to a low-carbon economy.

SEC Chair Gary Gensler said standardizing this information would benefit companies and investors alike. His legacy will be partly defined by this effort to formalize a system that has largely let companies produce climate information on their own terms.

The rule drops an earlier proposal to ask larger companies to gather and report data on planet-warming emissions from suppliers and end-users of their products, known as Scope 3 emissions, in some circumstances. Reuters first reported this change last month.

In a further move away from the more prescriptive draft, it also allows those larger companies to determine whether emissions from their own operations and the power they purchase constitute information that investors need to make decisions.

The two Republican commissioners voted against the rule while their three Democrats voted for it. Companies that oppose it are now widely expected to challenge it in court.

"The Commission ventured outside of its lane and set a precedent for using its disclosure regime as a means for driving social change," said Republican Commissioner Mark Uyeda.

Uyeda said the rule would force companies to spend time and money on discussing climate at the expense of "other matters that could have greater and more immediate impacts".

The Chamber of Commerce business group, which has filed a lawsuit against climate risk disclosure law in California, did not immediately comment.

Environmental advocates gave mixed reactions.

Ben Cushing, a Sierra Club campaign director said "the SEC's rulemaking represents a net-positive for investors and our capital markets over the current status quo." But Friends of the Earth president Eric Picha said "gutting (the) final climate disclosure rule is a massive giveaway to Big (Agriculture) and Big Oil, delivering a blow to investors."

The rules, part of Democratic President Joe Biden's agenda to address climate change threats through federal agencies, would join similar requirements in Europe and California.

Companies will be asked to add a note to their financial statements detailing costs stemming from severe weather events like hurricanes and wildfires, but a proposed requirement to split out the impacts of those costs was narrowed.

Smaller firms - that comprise the majority of U.S companies - will be exempt from reporting their greenhouse gas emissions.

(Reporting by Isla Binnie and Ross Kerber; Editing by Chizu Nomiyama, Barbara Lewis and David Gregorio)