SEC Climate Disclosure Rule Would Hit Smaller Firms The Hardest
As Connecting the Dots readers are aware, in 2022 the U.S. Securities and Exchange Commission (SEC) proposed a regulation that, if finalized as written, would require public companies to submit qualitative descriptions of their climate-related risks and any efforts to respond to those risks, including internal metrics and confidential strategies.
The draft rule also mandates quantitative reporting of companies’ greenhouse gas emissions and compels them to conduct quantitative climate impact analyses within their consolidated financial statements. As written, the SEC outline would force disclosure of so-called “Scope 3” emissions — emissions that come from companies’ supply chains. In other words, even though the SEC says this rule would impact only the country’s largest public firms, its requirements would ensnare smaller, private entities that work with public firms.
By the SEC’s own accounting, the proposed regulation would raise the cost to businesses of complying with its overall disclosure rules from $3.9 billion to $10.2 billion from $3.9 billion, with an additional cost of about $530,000 a year for larger firms. According to the National Association of Manufacturers (NAM), the compliance costs associated with the rule will be more than $400,000 per year for small public companies, adding to the burden small manufacturers face from federal regulators. According to NAM’s Cost of Federal Regulation study, the SEC’s proposal would add to the $50,000-per-employee-per-year regulatory burden small manufacturers face.
As a reminder, in February 2023, NAM and the Metals Service Center Institute joined more than 50 other manufacturing organizations to send a letter to members of the U.S. Senate Banking Committee and the U.S. House Financial Services Committee asking that federal lawmakers insist that the SEC develop a more workable solution for its climate disclosure rule. The letter argued manufacturers “cannot afford such an impractical and overbroad regulation” and urged Congress to work with the SEC on a more tailored proposal.