U.S., European Union Climate Disclosures Will Adversely Impact Manufacturers

The U.S. Securities and Exchange Commission (SEC) and European Union (EU) have both proposed mandatory climate disclosure rules that will require publicly traded companies to assess their impact on the environment.

According to a recent Wall Street Journal story, the European rules alone will likely require at least 10,000 companies outside the EU “to make and independently verify a number of sustainability disclosures.” About one-third of those companies are in the United States.

The National Association of Manufacturers (NAM) has argued these rules would be overly burdensome for manufacturers, forcing publicly traded companies to disclose their greenhouse gas emissions (including emissions attributable to their suppliers and customers), incorporate climate reporting into their financial statements, and divulge information about their plans for responding to climate-related risks.

As Connecting the Dots has explained in the past, small and privately held businesses could be ensnared in the rule as larger companies tries to comply with it.

NAM also has argued that if both the SEC and EU rules, which are set to go into effect as soon as January 2025, become law, there is potential for overlapping and contradictory mandates that would further increase financial costs for U.S. firms. (The EU rules alone include 82 annual disclosure requirements, each with its own measurements and explanations, and obligate businesses to have a third party audit their data.) Annual administrative costs for companies to report under the EU regulations likely would start in the tens of thousands of euros and increase from there.

Companies in the United States, meanwhile, estimate the cost of compliance with the SEC rules will exceed $750,000 in the first year alone.

As a reminder, it is for these reasons that, in February, the Metals Service Center Institute joined NAM and 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 the SEC develop a more workable solution for its climate disclosure rule.