Analysis by Energy Workforce SVP Government Affairs & Counsel Tim Tarpley
After months of delays and speculation, we finally saw a release of the proposed rules governing ESG disclosure from the SEC. In short, if adopted, these rules would force publicly traded companies to reveal the ways climate change could threaten their businesses and to estimate what their carbon contributions were throughout their companies’ operations, and in some cases, down the chain into Scope 3 emissions.
The SEC voted 3-1 Monday to propose the long-awaited ESG standards. SEC Chairman Gary Gensler, a Democrat, along with Democratic Commissioners Allison Lee and Caroline Crenshaw, voted in favor of the rule, while SEC Commissioner Hester Peirce, the agency’s sole Republican, voted against it.
The regulations now open for public comment for 60 days, and then the SEC must review these comments and publish the final rule. This review process in itself may take an additional few months. The 3-1 vote means it’s likely for the proposed rules to remain relatively intact and be adopted this year.
Among other new disclosures, companies will now be required to disclose climate related risks that could affect their bottom line. The proposed rules highlight the rising frequency of severe weather, the potential costs of shifting away from fossil fuels, and a company’s own efforts to limit its carbon footprint as potential factors to be considered. These calculations of potential costs will now need to be included in typical financial disclosure documents that are provided to investors.
Companies will be required to disclose their Scope 1 emissions, along with their Scope 2 emissions in their typical financial reporting package. This reporting for “Large Accelerated Filers” for Scope 1 and 2 would begin in 2025. Perhaps most relevant, and controversial to many companies in our sector, is that Scope 3 emissions reporting will also likely be required. The rules state that companies “should consider whether Scope 3 emissions make up a relatively significant portion of their overall GHG emissions.”
The rules go on to say that examples of scenarios where Scope 3 emissions would be required when they are a significant risk to be “subject to significant regulatory focus, or subject to a substantial likelihood that a reasonable investor would deem it important.” While additional clarity and specifics will likely be necessary to fully ascertain which companies would qualify under this analysis, it seems likely that the majority of our sector would fall under this test.
For Scope 3, Large Accelerated Filers would be required to begin reporting in 2025. Energy Workforce and Technology Council will form a task force to prepare comments on this proposed rule to submit to the SEC in the coming weeks. If you are interested in having somebody from your company participate in this task force, please email me. Additionally, Energy Workforce will soon host a webinar to discuss these proposed rules in additional detail.
Europe Debates Its Energy Future in Brussels
This week, EU foreign ministers met in Brussels to debate how to respond to the continued Russian invasion of Ukraine and the apparent intentional targeting of civilian targets in Mariupol and other locations across the country. While the EU has already levied serious actions against Russia including freezing its central bank’s assets and additional financial sanctions, many are pushing for the EU to do more and move to an energy blockade as the UK and the U.S. have already done.
The delegates, however, seem split as to the timeline or certainty of such a move. Officials from Germany and the Netherlands have spoken out about their opinion that the EU is not currently capable of completely weening itself off Russian oil and gas. The Baltic states are generally supportive of a full oil embargo, while others like Italy have spoken up about the economic shock that is certain to occur, as energy prices in their countries are already high.
“The question of an oil embargo is not a question of whether we want or don’t want (it), but a question of how much we depend on oil,” German Foreign Minister Annalena Baerbock told reporters. “Germany is importing a lot (of Russian oil), but there are also other member states who can’t stop the oil imports from one day to the other,” she said
Some diplomats have suggested that should chemical weapons, tactical nuclear weapons or a heavy assault on Kyiv be undertaken, then they will rethink their positions. In the meantime, Russia has threatened to cut off all gas supplies to Europe in retaliation for any attempt by the continent to limit Russian oil exports.
We can expect this debate to be front and center today when President Biden attends the event and joins Brussels for talks with NATO, the EU and G7 members. Should a decision be made to further limit Russian energy imports into Europe be made, we can expect increasing political pressure back home to increase energy production, energy infrastructure and export facilities to help support the European energy markets.
If you would like to get involved with the Council’s advocacy efforts or the Government Affairs Committee, contact SVP Government Affairs Tim Tarpley.
Tim Tarpley, SVP Government Affairs & Counsel, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.