SEC Proposed Disclosure Rules Are A Major Step Towards Protecting Investors, But Some Sectors Could Still Hide Over 90 Percent of Emissions Without Additional Clarity

Some corporations may not disclose 90-83 percent of their estimated emissions under proposed SEC rules creating the potential for greenwashing and risk for investors.

WASHINGTON, D.C. JUNE 7, 2022 – A new policy brief from Climate Advisers shows how large Fast Moving Consumer Goods companies (FMCGs) and other companies that rely on the global forest, food, and land sectors in their supply chains potentially could  avoid disclosing the majority of their greenhouse gas emissions under the U.S. Securities and Exchange Commission’s proposed climate rules.

The brief, Why Supply Chain  Emission Disclosure Is Necessary for Investors,  looks specifically at food systems that are responsible for up to 37% of the world’s emissions. The supply chain emissions of these companies can have up to 90% of their total GHG emissions footprint within their supply chain, commonly referred to as scope 3 emissions. Carbon accountants categorize a company’s emissions into three groups: Scope 1 – emissions are generated by a business’ owned or controlled assets, Scope 2 – indirect emissions created in the process of conducting business (energy use for example), and Scope 3 – indirect emissions that are most often the emissions from a company’s supply chain or the emissions created from the use of their products or services.

The new SEC rules may not incentivize or require these companies to disclose their emissions from supply chains that generate roughly one-quarter of global emissions. Scope 3 emissions consist of the activities from a company’s upstream (suppliers) and downstream value chain (use of their products). For some food companies like Nestlé, for example, requiring only scope 1 and 2 emissions to be disclosed would mean that investors only have guaranteed visibility to 5 percent of the company’s total greenhouse gas emission footprint.

“The SEC’s proposed regulation  is an incredibly positive step forward in informing investors about climate risks. As proposed, however, the draft rule has a huge loophole that needs to be closed. Unless companies with significant emissions in their supply chains are required to disclose those emissions,  the new regulation won’t achieve the stated goal of ensuring that investors have the information they need to make smart financial decisions about climate risk,” said Nigel Purvis, CEO of Climate Advisers.

The brief highlights that the lack of disclosure of scope 3 emissions for companies that have comparatively low scope 1 and 2 emissions profiles could lead to greenwashing and create confusion for investors. This is particularly apparent for FMCG companies that produce most of the goods we find on our grocery store shelves and numerous other sectors that rely on commodity supply chains in the forest, food and land sector. If the SEC were to finalize rules that did not include scope 3 emissions for FMCGs they might claim they have achieved net-zero emissions or carbon neutrality by ignoring these emissions. This creates an uneven playing field for other companies that must tackle a larger portion of their carbon footprint within scope 1 and 2 activities and could leave investors confused about different companies’ exposure to risk.

“Omitting scope 3 emissions in downstream forest, food, and land companies would create a market imperfection and potentially lead investors to underestimate climate-related financial risks in their portfolios. Reporting less than 20 percent of any risk in other categories would be considered misleading to investors. Why would investors accept that the threshold be any different for GHG emissions?,” said Niamh McCarthy of Climate Advisers. 

The brief recommends the SEC clarify the proposed materiality threshold for scope 3 emissions and intensity and to phase required disclosures, starting with medium and large companies with over 40 percent of GHG emissions in scope 3. This threshold is aligned to the standard set by the Science Based Target Initiative


Kyle Saukas

(989) 287-1483

Climate Advisers works to strengthen climate action in the United States and around the world through research, analysis, public policy advocacy and communications strategies. We partner with governments, non-profits, philanthropies, international organizations, financial institutions and companies to help deliver the clean economy. We develop and promote sensible, high-impact initiatives that improve lives, enhance international security and strengthen communities.