The Securities and Exchange Commission's proposal to require firms to disclose their emissions isn’t sitting well with financial services industry firms, but it was lauded by a consumer protection group.

Earlier this week, SEC commissioners voted to seek public comment on a proposal to require public companies to disclose their direct emissions, to have them vetted by a third party and to disclose on an annual basis their plans to reduce emissions.

The proposal addresses Scope 1 — the firms’ direct emissions — and Scope 2 emissions, or emissions arising from the energy bought by the firms.

In addition, the proposal would require firms to disclose Scope 3 emissions, which cover business travel, the end use of a company’s goods as well as products purchased by the company from third parties.

The proposal provides for a safe harbor for liability from disclosure of Scope 3 emissions as well as an exemption in regard to such emissions for smaller firms, according to the SEC.

The comment period is open for 30 days after publication in the Federal Register, or 60 days after the date of publication on the SEC’s website, whichever is longer, the regulator says.

The Securities Industry and Financial Markets Association supports “material principles-based climate disclosures that deliver a balance of tailored disclosures and comparable quantitative information across registrants, while minimizing registrant compliance costs and ensuring a flexible disclosure regime that can meet evolving circumstances," Kenneth Bentsen, Jr., the group's chief executive officer, said in a statement.

However, Sifma is concerned about “the Scope 3 and limited safe harbor provisions as well as the hastened implementation timelines," Bentsen said.

Chris Iacovella, CEO of the American Securities Association, was far more critical of the proposal.

“Having an administrative agency prioritize the interests of an ESG-Industrial Complex that invests in China and Russia over those of America’s working families, retail investors, and retirement savers to dispense with the concept of materiality and to force the reallocation of capital towards politically-favored industries should concern every American,” Iacovella said in a statement.

“Before any rule is finalized, the American public must understand exactly how the SEC plans to empirically prove its disclosures will impact global temperatures, our national security, and the cost of food, gas, heat, and other goods and services American citizens need to live," he added.

Meanwhile, SEC commissioner Hester Peirce — the only dissenting vote on the proposal — said that it would favor accounting firms and climate consultants while driving up the costs of doing business, according to the Financial Times.

“Score one for the climate industrial complex,” she said, according to the publication.

Indeed, sustainability research firm Verdantix said in a statement that the proposal would result in companies spending an estimated $6.7 billion on “consulting, legal, assurance and digital solutions.”

“Verdantix believes that this will pose an additional challenge for issuers who may struggle to find the internal and external experts to implement a robust management system for SEC climate rule disclosures,” the firm said in the statement.

Verdantix suggests that companies look to “tech innovators at firms like Cervest, Envizi, Persefoni, Planetly, Watershed and Workiva as firms that have anticipated this demand and are now well positioned in the market.”

'Step Closer'

The Consumer Federation of America welcomes the SEC proposal, however.

“We are pleased to see the SEC move one step closer to providing investors with this decision-useful information, and importantly, to eliciting these disclosures with a level of specificity and assurance that seeks to promote their usefulness and reliability,” CFA financial services counsel Dylan Bruce said in a statement.

“By improving the consistency, comparability, and dependability of climate-related disclosures, the SEC’s proposal would enable investors to better understand how climate risks affect the public companies in which they are invested, and subsequently, will promote more efficient pricing of risk and better capital allocation,” he added.

The CFA also supports the SEC’s efforts to improve disclosures in general.

“It is incumbent upon the SEC to facilitate companies’ disclosure of accurate and reliable information that investors can understand, and in a way that enables investors to make meaningful comparisons across the market,” CFA director of investor protection Micah Hauptman said in a statement.

“This proposed rule appears to accomplish these goals, based on our initial review. We look forward to delving into the details of this proposal and providing our feedback in a comment letter to the agency,” he added.

With additional reporting from Rita Raagas De Ramos

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