June 22, 2022

SEC’s Climate Disclosure Proposals: Expand Attestation to Scope 3 Emissions Data?

While the SEC’s Scope 3 emissions disclosure proposal has its detractors, there are also some who want to see the proposed Scope 3 disclosure requirement enhanced.  Fans of Scope 3 disclosure include SEC commissioners Lee & Crenshaw, who recently expressed a desire to see the proposed attestation requirement that would apply to Scope 1 & 2 disclosures extend to Scope 3 as well. Here’s an excerpt from Cydney Posner’s recent blog:

While the proposed requirement to disclose material Scope 3 greenhouse gas emissions seems to be one of the most contentious—if not the most contentious—element of the SEC’s climate disclosure proposal (see this PubCo post and this PubCo post), two of the SEC’s Democratic Commissioners, Allison Herren Lee and Caroline Crenshaw, told Bloomberg that they think it still doesn’t go far enough. They are advocating that Scope 3 GHG emissions data be subject to attestation—like the proposed requirement for Scopes 1 and 2—to ensure that it is reliable. This discussion might just be a continuation—or perhaps a reinvigoration—of an internal debate that reportedly led to delays in issuing the proposal to begin with.

The commissioners’ concerns arise from a combination of the importance of Scope 3 emissions data – which accounts for the vast majority of most companies’ GHG emissions – and concerns about the reliability of the Scope 3 data that would be generated under the proposed rules. I get the concern, but I’m not thinking this is the best idea I’ve ever heard, for three reasons.

– First, as things stand now, the same reliability issues that prompt the commissioners’ concern make me skeptical that a reputable professional would be able to provide an attestation opinion of any kind on a company’s Scope 3 emissions data.

– Second, there’s a huge “garbage in/garbage out” issue lurking with Scope 3 disclosure that an attestation doesn’t solve. Even assuming I’ve underestimated the willingness or the ability of service providers to render such an opinion, the question remains – what good will it do? As the Risk Management Association pointed out in a recent comment letter calling for the SEC to “recalibrate” the Scope 3 emissions proposal, “the methodologies, standards, data and internal capabilities necessary to produce the proposed quantitative disclosures are in development or are just beginning to be explored, calling into question the feasibility and practical benefits of the disclosures, at least in the near term.”

– Third, my guess is that even a limited assurance attestation of Scope 3 data would cost the average company around eleventy squijillion dollars, and that simply doesn’t seem justifiable based on the questionable benefits to be derived from requiring it.

John Jenkins