SEC Climate Report Rules Face Legal Threat From Manufacturers

The National Association of Manufacturers is considering suing over the SEC’s pending climate disclosure rules, if the final version fails to address the group’s concerns about costs to companies and the agency’s power to impose the regulations in the first place.

The Securities and Exchange Commission’s proposal to require greenhouse gas emissions reporting and other climate disclosures from publicly traded companies has “legal deficiencies” the agency should correct before finalizing regulations, Charles Crain, the vice president for domestic policy at the National Association of Manufacturers, told Bloomberg Law Thursday.

Crain’s remarks came after he told lawmakers at a House Financial Services subcommittee hearing that the SEC produced a “faulty” analysis of the plan’s expenses, without accounting for “tremendous costs” to companies.

General compliance costs would hit about $530,000 for big public companies and $420,000 for smaller ones annually after the first year, according to the SEC’s proposal. But the proposal said the agency couldn’t “fully and accurately quantify” costs for complying with emissions reporting requirements.

A National Association of Manufacturers lawsuit is “a very real possibility, if they don’t make changes,” Crain told Bloomberg Law.

An SEC representative responded to a request for comment by directing Bloomberg Law to past remarks agency Chair Gary Gensler made in defense of the climate disclosure proposal.

‘Significant Burden’

The manufacturers’ warning is the latest litigation threat the SEC has received since it proposed its climate rules in March 2022. The agency is targeting April for the regulations’ release, according to its latest rulemaking agenda.

Republican attorneys general in West Virginia, Florida, and other states already have threatened to sue. And the SEC is bracing for a possible lawsuit from the US Chamber of Commerce, with Gensler saying last year he’d “prefer” that the group not sue the agency.

The SEC’s initial proposal would order large companies to disclose what’s known as Scope 3 emissions from supply chains and other indirect sources. This plan exemplifies flaws with the agency’s cost analysis and its statements saying it has the authority to mandate the rules, Crain said during the hearing on the proposed regulations.

Big companies could burden family farmers and other small private businesses with emissions data requests or seek other suppliers if they don’t get the information, business groups have said. And reasonable investors wouldn’t find the details necessary, putting the disclosures outside of the SEC’s authority, Crain said.

Gensler has said the SEC has the power to mandate the disclosures as it seeks to improve the consistency, comparablility, and reliability of climate reporting for investors. But the chair has said he’s trying to avoid any Scope 3 reporting trouble for private firms that supply large companies, saying estimates of the emissions are allowed under the proposal. Environmental and investor advocates now are bracing for watered-down requirements.

“Requiring larger companies to report their supply chain emissions is a significant burden and it will fall directly on their small and privately held suppliers, because it’s their emissions that the SEC wants to know about,” Crain said during the hearing.