SEC’s Narrower Emissions Rules Shaped by Powerful Farm Lobby

For all of the American Farm Bureau Federation’s lobbying prowess in Washington, the Securities and Exchange Commission wasn’t a place where it had much experience.

It hadn’t needed it. The SEC, after all, didn’t have much to do with farming. That is, until it proposed rules in 2022 that would have required big public companies to disclose the greenhouse gas emissions of their suppliers—among them, family farmers.

Lacking the agency contacts he had elsewhere, lobbyist Travis Cushman fell back on the argument the Farm Bureau has leaned on in Washington for so long: This was another case of bureaucrats saddling small farmers with unwarranted costs.

Cushman also fell back on familiar faces in Congress. He won critical help from a fellow farmer in the Senate. But just as critically, the SEC’s chief Democratic nemesis in the Senate elected not to stand in the way of the agency killing that requirement as part of a broader package of climate reporting rules.

All that was enough for SEC Chair Gary Gensler, who’d sought more limited climate disclosure requirements to begin with. The final climate rules issued in March took out the so-called Scope 3 supply chain mandate in the draft that would drawn farmers into the reporting rules.

“We were very, very concerned that it would be suddenly so burdensome that only the largest operations would really be able to survive,” Cushman said, citing the trend of small-farm consolidation over the last few decades. Scope 3, he—successfully—argued, would spell the demise of more farms.

After releasing the rules without Scope 3, the SEC decided to pause the remaining ones in the face of 11 lawsuits challenging them. And Republicans, in charge of the House by a slim majority, also look to squash the rules via a Congressional Review Act resolution and to show the harm of the regulations in a hearing scheduled Wednesday.

Allies

Farms run by families or individuals make up almost 85% of US farms, according to the US Department of Agriculture, and there are farms in each state. That made finding allies in Congress—especially those with clout—particularly easy.

Republicans oppose most—if not all—actions of the current SEC, and part of their strategy to stop the climate rules involved using Scope 3 and the farmers to prove it would be harmful. House Republicans introduced a bill in 2022, and subsequently reintroduced it last year, that would carve out farms and ranchers from the rules, even if large public companies subject to the regulations need the information to comply.

Lobbying disclosures show the Farm Bureau began lobbying the SEC and the USDA for “general concerns of reporting requirements on farms and ranches” in the second quarter of 2022, after the rules were proposed.

According to the documents, the Farm Bureau spent $680,000 in the quarter in total lobbying activities, which included the proposed rules. That figure was up from $670,000 from the prior year. In the third quarter of 2022, it spent another $520,000 and began lobbying lawmakers in both chambers.

For the SEC’s part, an agency spokesperson disputed that the rules weren’t a priority for Gensler. “We put the climate risk disclosure rule on our agenda, proposed the rule, reviewed and addressed more than 24,000 comments on the rule, took hundreds of meetings to discuss the rule, adopted an 886-page rule, and are defending the rule in court,” the spokesperson said.

Settling

Sen. Jon Tester’s staff began meeting with the Farm Bureau after the SEC proposed the rules. And at a September 2022 Senate Banking Committee hearing, the Montana Democrat brought the issue of his own farm to Gensler, who said he personally talked with farmers, farm groups “and of course” Farm Bureau President Zippy Duvall. Conversely, the US Chamber of Commerce mobilized to build a coalition of conservatives to oppose the rules.

“The fact that farming has everything to do with the sustainability of the American population, and a particularly protected population on Capitol Hill, it stands to reason that farming became one of the examples of the ways Scope 3 would be harmful,” said Evan Williams, executive director at the US Chamber of Commerce’s Center for Capital Markets Competitiveness.

In that hearing, Gensler tried assuaging concerns that Scope 3 emissions reporting would be onerous. Not mentioned at the time was that Gensler pushed for more limited emissions disclosures before he and the SEC’s two other Democratic commissioners agreed to propose the requirement. He was concerned that requiring Scope 3 reporting would fuel lawsuits, according to Bloomberg News.

Tester, in an interview, said he would have supported the resolution to strike the entire rule had Scope 3 been included.

“We’ve got enough work to do without adding what I think is unnecessary, burdensome reporting,” Tester said. “I’ve got combiners to fix, and parts to buy, and fields to work and seed and harvest and all that—it just didn’t make any sense.”

Democrats were most concerned with keeping requirements for companies to disclose Scope 1 and 2 emissions that come from their direct operations and power usage. While more progressive members of the party like Sen. Elizabeth Warren (D-Mass.) thanked the SEC staff in comment letters for fashioning the proposed rules as “robust” as possible, they also expressed satisfaction for the “flexibility” in the proposal that would relieve—as the only example—family farms.

And while Warren conveyed frustration that Scope 3 was excluded from the final rules, she and other congressional advocates of climate disclosure didn’t fight the SEC’s move, either. A spokesperson for Warren didn’t respond to a request to comment.

In the House, leaders of the Sustainable Investing Caucus, Reps. Sean Casten (D-Ill.) and Juan Vargas (D-Calif.), expressed satisfaction with the compromise and that efforts to kill the rules completely were unsuccessful.

That lukewarm reception opened the door for the agency to finalize the rule without its most controversial pillar, said Jacob Hupart, a co-chair of the environmental, social and governance practice group of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

“I wouldn’t say there was an absence of a political pressure campaign from the progressive wing of the Democratic Caucus,” Hupart said. “It wasn’t as vocal or as prominent.”

And the fact that Europe and California, a farming powerhouse in its own right, both have rules requiring Scope 3 emissions disclosures signals a sort of permanency of the provision in one way or another. So even with the SEC narrowing its proposal, Democrats—and the farmers—both won this round.

“If this rule does not go quite as far as they may have hoped or originally planned, that doesn’t change the fact that it’s still a significant victory for them,” Hupart said.