SEC Releases Climate Disclosure Rules

SEC logo and text

On March 6, the U.S. Securities and Exchange Commission (SEC) released long-awaited final “Climate Disclosure Rules” that establish federal regulations for registered companies to disclose climate-related financial risks and opportunities. The Real Estate Roundtable has prepared a fact sheet summarizing “What CRE Should Know” about the new SEC rules.

Overview of the SEC Rules

  • The rules require certain registrants to report “material” financial impacts to address storms, wildfires, sea level rise, and other events attributable to climate change (SEC news release, March 6)
  • Certain climate-related expenses and costs must be quantified and disclosed in audited financial statements filed annually as part of Form 10-K.
  • The rules also expand disclosures in narrative “items” included in a 10-K, such as descriptions of “physical” and “transition” risks from extreme weather and related events.
  • The SEC’s final rules impose no requirements to report Scope 3 emissions from sources in a company’s “value chain” – following the position advocated by the Roundtable in 2022 comments. (Roundtable Weekly, June 10, 2022)
  • “The SEC’s decision to drop proposed Scope 3 reporting was the right move,” said Roundtable President and CEO, Jeff DeBoer. “It would have imposed onerous financial and paperwork burdens for commercial real estate owners and failed to produce reliable and useful emission information for investors.”
  • The Climate Disclosure Rules phase-in and ramp-up over time. The largest companies (in terms of the amount of shares held by public investors) must start complying in 2025. (RER Fact Sheet)

Impacts on CRE 

The Roundtable’s Fact Sheet on the SEC’s Climate Disclosure Rules
  • CRE registrants should become familiar with the new rules if they voluntarily set corporate “targets” to reduce emissions in their buildings or portfolios, or own assets located in cities or states with building performance mandates.
  • Companies that purchase renewable energy certificates (RECs) or carbon offsets may also be subject to SEC disclosures.
  • CRE owners and financial firms with “lifecycle” cap ex investment plans for building electrification may also be subject to new reporting.
  • The SEC’s rules do not preempt similar state requirements. For example, companies regulated by California’s climate disclosure laws passed in 2022 must satisfy those rules in addition to SEC rules. (Roundtable summary of the California legislation and Roundtable Weekly, Sept. 22)
  • The courts may ultimately decide the legality of the SEC’s actions. Institutional investors might move the market toward the SEC’s rules even if they are stalled or struck in court.

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will continue to assess the implications of the SEC’s rules and convene our members to develop industry standards and practices for compliance.

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Congress Punts Funding Deadlines … SEC to Vote March 6 on Climate Disclosures … Roundtable Urges EB-5 Guidance Correction

A bill passed by both chambers of Congress yesterday and signed by President Biden today punts a set of government funding deadlines to March 8 and 22, thereby preventing a partial government shutdown that was scheduled to start at midnight. (ABC News, March 1 | House bill text)

New Stopgap Goals

  • The new two-tiered stopgap bill gives policymakers some time to negotiate a full-year appropriations bill as a House-passed tax package is under consideration in the Senate. (See tax story below).
  • On Wednesday, congressional leaders announced the deal, which extends funding for the departments of Housing and Urban Development, Commerce, Energy, Transportation, and others from March 1 through March 8. The bill also extends funding for the Pentagon, Health and Human Services, Labor, and other agencies from March 8 through March 22.

SEC to Vote March 6 on Climate Rule

  • The U.S. Securities and Exchange Commission (SEC) announced a vote next week on whether it will adopt final rules requiring companies to provide certain climate-related information in their registration statements and annual reports.
  • The SEC’s “open meeting” to consider the climate rule will take place on Wednesday, March 6 at 9:45 am and will be webcast at www.sec.gov.

Roundtable Urges Congress to Correct EB-5 Guidance

  • The Real Estate Roundtable urged the leaders of the Senate and House Judiciary Committees this week to correct defective “guidance” enacted by the U.S. Citizenship and Immigration Services (USCIS) that is undermining the EB-5 Reform and Integrity Act of 2022 (RIA). [Roundtable EB-5 letter, Feb. 28, 2024]
  • The USCIS’s arbitrary guidance states that EB-5 investments made after RIA’s enactment must “remain invested for at least two years.” This position contradicts regulations kept by USCIS on its rulebooks for decades.
  • RER’s letter also explains that USCIS’s defective guidance exacerbates CRE’s current liquidity issues. For example, the agency’s position effectively eliminates the availability of EB-5 investment capital to help finance projects to convert underutilized commercial buildings to multifamily housing.  

The Roundtable is calling on Congress to correct the error with a short statutory change that codifies the long-standing regulatory approach, which couples the periods for EB-5 capital sustainment and conditional residency.

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Federal Initiatives on Buildings, Climate Gaining Momentum Ahead of 2024 Elections

The White House

The Biden-Harris administration is accelerating actions at the intersection of climate and real estate policy in the lead-up to November’s elections to implement its signature clean energy legislation passed during its first years in office. RER’s Sustainability Policy Advisory Committee (SPAC) remains engaged with policymakers on a variety of initiatives coalescing in 2024 that include the following:

Climate-Related Financial Risk

  • The U.S. Securities and Exchange Commission (SEC) is expected to issue a final rule this spring for registered companies to disclose financial risks from climate change.(RER fact sheet and Roundtable Weekly, March 10, 2023).
  • Scope 3 “indirect” emissions from sources in a company’s supply chain are controversial elements of the anticipated SEC rule. RER’s 2022 comments urged the Commission to drop its “back door mandate” for Scope 3 disclosures. (Roundtable Weekly, June 10, 2022)
  • Litigation against the SEC’s imminent rule is widely expected. A recent lawsuit filed by industry groups against a California disclosure package passed last summer (modeled after the SEC’s proposal) signals similar claims that the federal government might face in court. (Wall Street Journal, Jan. 30 and RER fact sheet)

Voluntary Frameworks

EPA's NextGen Building Label
  • The Environmental Protection Agency (EPA) will accept applications for its NextGen building label starting in September. (EPA slides to SPAC, Jan 24) ENERGY STAR assets will be NextGen-eligible if they also meet an emissions “target” and source 30 percent of energy use to renewable power. (RER fact sheet)
  • NextGen certification may serve as an “intermediate step” for buildings that strive for a voluntary Zero Emissions Building (“ZEB”) definition coming from the U.S. Energy Department. Recent comments from RER and Nareit maintain that the federal ZEB definition can lend consistency to the confusing state-local regulatory patchwork of building performance standards. (Roundtable Weekly, Feb 2.)
  • EPA is acting on requests to update Portfolio Manager, CRE’s standard tool to measure metrics for building efficiency and emissions. Portfolio Manager upgrades announced at last month’s SPAC meeting will help real estate companies strive for NextGen or ZEB status. (Coalition letter, Sept. 14, 2023)
  • This spring, the influential GHG Protocol—an international framework heavily relied upon by the SEC, EPA, DOE, and institutional investors—will undertake its first revisions since 2015 to its guidance for companies to account for emissions from electricity use. RER will participate in the upcoming Scope 2 guidance public comment process.

Tax Incentives

Ben Myers, left, and Tony Malkin, right -- SPAC leadership
Roundtable Sustainability Policy Advisory Committee Chair Tony Malkin, right, and
Vice Chair Ben Myers
  • The Internal Revenue Service (IRS) has issued dozens of proposed rules and notices to implement clean energy tax incentives available to real estate and other sectors since Congress passed the Inflation Reduction Act (IRA) in 2022. (RER fact sheet)
  • The IRS is expected to release final rules before November on topics such as the ability of REITs to transfer certain tax credits, proposed rules on non-urban census tracts eligible for EV charging station credits, and the 179D deduction for building retrofits.
  • RER has submitted comments on these and other topics in response to initial IRS notices and will continue to provide feedback as opportunities arise. (RER letters Oct. 30 and July 28, 2023;  Nov. 4 and Dec. 2, 2022)

The Roundtable’s SPAC—led by Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust) and Vice Chair Ben Myers (Senior Vice President of Sustainability, BXP)—will press forward with RER’s climate and energy priorities for the remainder of the current administration and into the next.

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Building Emissions Policies Picking Up Steam in 2024

A confluence of mandatory rules and voluntary guidelines pertaining to real estate’s climate impacts—including a first-ever U.S. definition for the term Zero Emissions Building (“ZEB”) and an imminent Securities and Exchange Commission (SEC) greenhouse gas disclosure rule—will be a key focus of policy makers in 2024.

ZEB Definition

  • On Jan. 9, GlobeSt reported that The Roundtable supports the direction of the Biden administration’s recently released voluntary ZEB draft definition pertinent to private sector existing buildings and new construction. (Roundtable Weekly, Jan. 5)
  • The ZEB definition proposes voluntary criteria for buildings to be highly energy efficient and powered solely by clean energy sources to attain zero emissions status.

  • The Roundtable’s Sustainability Policy Advisory Committee (SPAC) is working on comments (due Feb. 5) in response to the Energy Department’s draft.

SEC & Scope 3

  • The SEC is expected to release its long-anticipated climate risk disclosure rule this spring. (Roundtable Weekly, March 10, 2023) On Jan. 11, Bisnow quoted Roundtable Senior Vice President and Counsel Duane Desiderio about the SEC’s impending rule and its impact on CRE and other industries. 
  • Desiderio explained to Bisnow, “Let’s hope the SEC delivers some workable rules and brings rationality to this space, especially regarding Scope 3 indirect emissions” that cover sources in a company’s supply chain beyond its immediate control. Desiderio added, “The market is certainly moving in the direction of the SEC rule.” (RER Fact Sheets: SEC’s Proposed Rule and California’s Climate Disclosure bills)

179D & BPS

  • Another federal rule expected in the coming weeks concerns the section 179D tax deduction for energy efficient buildings, substantially revamped by the Inflation Reduction Act (IRA). (Roundtable Weekly, Dec. 1).The Internal Revenue Service will propose a regulation for comment that addresses how existing building retrofits may qualify for this incentive.
  • Axios (Jan. 9) reported this week about trends at the local level to enact building performance standards (BPS) such as LL 97 in New York City. While Congress has not granted authority for a national emissions mandate on buildings, more cities and states are expected to run with these efforts in 2024. (Roundtable Weekly, Sept. 15).
  • A report from the Rhodium Group this week shows U.S. GHG emissions decreased nearly 2 percent year-on-year in 2023. The report also notes that emissions from commercial and residential buildings dropped by 4 percent, which the researchers attributed primarily to a mild winter. (PoliticoPro and The Hill, Jan. 10)  

SCOTUS to Consider Federal Agency “Deference”

The Supreme Court
  • A wild card in the effectiveness and durability of federal regulations—not just in the climate arena, but from any U.S. agency—will be at the fore this spring when SCOTUS renders a decision in Loper Bright Enterprises v. Raimondo.
  • Loper will consider whether an administrative law doctrine from 1984 known as “Chevron deference,” which grants wide latitude to federal agencies when crafting rules to implement laws passed by Congress, should be overruled. (SCOTUS Blog, May 1, 2023)
  • The Department of Commerce stated in their brief that overruling Chevron “would be a convulsive shock to the legal system.” Oral argument will take place next Wednesday, with a decision expected by early summer. (SCOTUS Blog, Jan. 8, 2024)

Officials from the White House, the Environmental Protection Agency, the Energy Department and leading non-governmental organizations will address issues at the nexus of buildings and climate policy on January 24 at the Roundtable’s all-member 2024 State of the Industry Meeting.

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SEC Commissioner and Key Senators Support Further Analysis of Climate Disclosure Proposal

The U.S. Securities and Exchange Commission (SEC) headquarters in Washington, DC

One of the commissioners from the Securities and Exchange Commission (SEC) and two U.S. Senators suggested this week that further analysis may be needed for a highly anticipated SEC rule on climate reporting, which includes a proposal for sweeping disclosures on Scope 3 GHG emissions. (Bloomberg Law, Nov. 7 | SEC headquarters in Washington, DC, above)

Stakeholder Comments

  • Given that the SEC has received more than 16,000 stakeholder comments on the proposal, Republican SEC Commissioner Mark Uyeda said, “Before the Commission adopts any final rule that significantly deviates from the proposal, it should seriously consider re-proposing the rule with revised rule text and an updated economic analysis.” (Ayuda’s comments, Nov. 7 and The Hill, April 6)
  • SEC Chair Chair Gary Gensler indicated in March that the agency’s climate-related reporting rule may be scaled back. (CNBC, March 7 and Roundtable Weekly, March 10)

Senators Support Additional Feedback

Sen. Bill Hagerty (R-TN), left 
Member, Senate Committee on Banking, Housing and Urban Affairs
and Roundtable Board Member Geordy Johnson (CEO, The Johnson Group)
Sen. Bill Hagerty (R-TN), left, and Roundtable Board Member Geordy Johnson (CEO, The Johnson Group) at The Roundtable’s 2023 Annual Meeting in June.
  • Sens. Bill Hagerty (R-TN) and Joe Manchin (D-WV) also expressed support this week for obtaining additional feedback about the SEC’s proposed rule. Sen. Manchin chairs the Senate Energy and Natural Resources Committee and Sen. Hagerty serves on the Senate Banking Committee. (Hagerty-Manchin letter and PoliticoPro, Nov. 9)
  • The lawmakers wrote to SEC Chairman Gary Gensler about recent California state laws that require companies to disclose their emissions, which beat the SEC to the punch on releasing final climate reporting rules. (Roundtable Weekly, Sept. 22 and The Real Estate Roundtable’s summary of the California legislation.)
  • The Senators’ letter states, “The interconnectedness of the California requirements and the SEC’s proposal is undeniable: thousands of businesses would end up being subject to both the California requirements and the SEC’s rule, if finalized. However, key differences between the two raise significant compliance questions that the SEC should thoroughly review.”

Roundtable Comments on Scope 3

Philadelphia center city
  • Scope 3 refers to indirect emissions that are part of an organization’s value chain but not owned or controlled by the reporting company. The 2022 SEC proposal would require corporate issuers of securities to estimate and report Scope 3 emissions “if material” in 10-Ks and other filings. (SEC News Release, March 22, 2022)
  • Roundtable comments submitted in June 2022 emphasized that the SEC’s proposed directive, which would mandate that companies report on Scope 3 emissions “only if material,” is a “back-door mandate” that should be dropped. The comment letter added, “No registrant should be effectively required to report on indirect emissions beyond its organizational or operational boundaries.” (Roundtable Weekly, June 10, 2022),

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) plans to respond to any further developments on the SEC’s proposed climate disclosure rule or other climate-related regulatory proposals affecting CRE.

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Roundtable Urges SEC to Exempt Real Estate from Proposed Safeguarding Advisory Client Rule

Securities and Exchange Commission building

The Real Estate Roundtable urged the Securities and Exchange Commission (SEC) this week to exempt real estate from a proposed Safeguarding Advisory Client Rule that could severely limit advisory clients’ ability to invest by fundamentally changing the ownership and transfer rights of real estate. The proposed rule currently includes a conditional exception for real estate assets, which would impose a new layer of unclear and unnecessary oversight—and inject significant confusion into well-established transaction protections, rules, and procedures governing real estate transactions. (Roundtable letter, Oct. 30 and SEC Proposed Rule)

The “Proposing Release”

  • The Oct. 30 letter from Real Estate Roundtable President and CEO Jeffrey DeBoer reiterated current legal protections that promote the safe-keeping of real estate assets held in advisory accounts or funds. DeBoer urged the SEC “… in the strongest possible terms to exclude real estate from the scope of any final [Safeguarding] rule,” citing the ample set of existing protections that prevent real estate assets from fraudulent transfer.
  • The letter also emphasized that the SEC has not coherently explained how the Proposed Safeguarding Rule would apply to real estate.
  • Current law (the “Custody Rule”) under the Investment Advisers Act of 1940 requires an investment adviser to maintain clients’ funds and securities with a qualified custodian. The new proposed SEC rule would expand this requirement to maintain all advisory client assets with a qualified custodian.
  • Since it is not possible to maintain real estate and certain other physical investments with a qualified custodian, the proposal includes a conditional exception that includes the following language:

“In the real estate context, a deed or similar indicia of ownership that could be used to transfer beneficial ownership of a property would not qualify for the exception, but the physical buildings or land would qualify.”

  • The Roundtable’s letter challenges this “Proposing Release” as confusing, impractical, and unworkable for holding and transferring real estate deeds. It also conflicts with current state and country chain of custody legal requirements that govern real estate transactions.
  • The letter also notes the SEC could chose to make the conditional exemption available to real property, because a physical asset cannot be maintained with a qualified custodian. Additionally, the requirement to maintain custody of deeds with a qualified custodian—compared to recording the interest with a governmental authority—serves no regulatory purpose.

Existing Layers of Safeguards

SEC logo and text
  • Other existing safeguards come into play. State laws currently require signature verifications, notarizations, and accompanying IDs that provide significant hurdles to an attempted fraudulent transfer.
  • Modern real estate transactions in the United States also require buyers and lenders to obtain title insurance, which involves a title insurance company to engage in substantial due diligence of the chain of ownership. Real estate lawyers representing the buyer and/or seller represent yet another intermediary, since they are often involved in these asset transactions to provide yet another source of gatekeeper protections.
  • The Roundtable letter states the SEC must explain how it would be possible to maintain title or deed with a qualified custodian since the “Proposed Rule would fundamentally change the ownership and transfer rights of real estate.” The letter states the SEC should avoid any final rule that would limit clients’ access to, or unduly burden, investment in the real estate asset class.
  • The Proposing Release also contains no evaluation of any risk of loss for real estate assets—it only asserts such risk as a theoretical matter.
  • The Roundtable and a diverse group of 25 trade associations previously wrote to SEC Chair Gary Gensler to oppose the Safeguarding Advisory Client Rule proposal and explain the negative impacts it would have on investors, market participants, and the financial markets. This week’s letter from The Roundtable focused exclusively on the proposal’s impact on real estate assets. (Roundtable Weekly, Sept. 15)

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Custody Rule Working Group developed this week’s comments and met today with the SEC’s Division of Investment Management about the proposal. RECPAC is scheduled to meet Nov. 8 in New York City.

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California Passes Corporate Climate Disclosure Package; Biden Administration Releases Net-Zero Emissions Principles for Financial Institutions

Recent government actions amplify the increasing focus by policymakers on climate laws and guidelines—and their heightened impact on CRE. The California legislature recently passed first-of-its-kind state laws that require companies to disclose their emissions, beating to the punch anticipated federal climate reporting rules from the U.S. Securities and Exchange Commission (SEC). (Politico, Sept. 17)

Meanwhile, the Biden administration issued voluntary principles this week for asset managers, banks, insurers, and venture capital companies with goals for “net zero” emissions investments, including real estate. (Treasury news release, Sept. 19)

California’s Climate Risk Disclosure Package

  • California’s legislature passed two bills (SB 253 and SB 261) last week requiring climate-related disclosures from certain companies doing business in the state. Most notably, the Climate Corporate Data Accountability Act (SB 253) would require entities with total annual global revenues greater than $1 billion to quantify and publicly report Scopes 1, 2, and 3 emissions.
  • SB 253 is estimated to regulate around 5,400 companies. Gov. Gavin Newsom (D) pledged to sign both bills, although he may request changes when the legislature reconvenes in January. The laws could be challenged in court before they take effect over the next several years. (Wall Street Journal, Sept. 20 and New York Times, Sept 17)
  • The California legislature “leapfrog[ged]” the U.S. SEC (Bloomberg, Sept. 12), which has yet to release highly anticipated federal rules that are expected to require registered companies to report to investors on material climate-related financial risks in 10-Ks and other filings. (See RER’s 2022 comments on SEC proposal | Roundtable Weekly, March 10 and June 10, 2022)

U.S. Treasury’s Net-Zero Emissions Investment PrinciplesU.S. Treasury’s Net-Zero Emissions Investment Principles -- publication imageThe Treasury Department’s Principles for Net-Zero Financing & Investment is focused on “financial institutions’ scope 3 financed and facilitated greenhouse gas (GHG) emissions.” It urges private sector financial institutions to align their GHG reduction efforts and net-zero goals with their “portfolio companies,” “portfolio of assets,” and “client base.”

  • The document notes that clients and portfolio companies should provide to their financial institutions their own net-zero plans, including “metrics and targets” for Scopes 1, 2 and 3 emissions. Buildings and real estate assets have long been considered part of a financial institution’s Scope 3 emissions “value chain.” 
  • The set of nine principles encourage greater adoption of emerging best practices for private sector financial institutions that have made net-zero commitments, while promoting consistent and credible implementation approaches.

A Sept. 12 podcast featuring Roundtable Senior Vice President & Counsel Duane Desiderio, and Nareit’s Senior Vice President of Environmental Stewardship and Sustainability Jessica Long, discusses the imminent SEC rule and other real estate policy priorities in the energy and climate arena. (Listen to Nareit’s “Real Estate Roundtable says CRE Playing Key Role in Success of Federal Climate Programs”)

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SEC Issues Final Cybersecurity Disclosure Rules for Public Companies

SEC Cyber Disclosure

The Securities and Exchange Commission (SEC) finalized new rules last week by a vote of 3-2 that will require public companies to disclose more information about cybersecurity-related incidents, risk management, strategy, and governance. A joint comment letter by The Real Estate Roundtable and Nareit about the SEC proposal was cited nearly a dozen times in the final rule. (SEC fact sheet | Roundtable-Nareit comment letter, May 9, 2022)

Industry Objections

  • The Roundtable and Nareit expressed a number of concerns in their May 2022 letter about the proposed rule’s rigid incident reporting deadlines and granular requirements, which the industry organizations stated may unintentionally exacerbate cybersecurity risks for issuers while imposing unjustified burdens. (Roundtable Weekly, May 13, 2022)
  • Under the new rules, registered companies must report cyber-attacks by filing an 8-K form with the SEC within four business days, which The Roundtable and Nareit objected to in their joint letter.
  • Responding to these concerns, the SEC stated in its final rule that it is “… providing for a delay for disclosures that would pose a substantial risk to national security or public safety, contingent on a written notification by the Attorney General, who may take into consideration other Federal or other law enforcement agencies’ finding.” (Pensions and Investments, July 26)
  • The SEC also responded to industry concerns by stating it had “streamlined” its requirements on cyber-attack disclosures to focus more on the potential effects, rather than the details of the incident itself. (Wall Street Journal, July 26 | PillsburyLaw and GreenbergTaurig)
  • The agency states in its final rule, “To that end, to balance investors’ needs with the concerns raised by commenters …The final rules will require the registrant to describe the material aspects of the nature, scope, and timing of the incident, and the material impact or reasonably likely material impact on the registrant, including its financial condition and results of operations.”
  • SEC Chairman Gary Gensler emphasized that the final rule does not require disclosure of non-material information related to incidents—unlike the original proposal issued in March 2022. (SEC news release, July 26, 2023 and Roundtable Weekly, March 18, 2022)

New Disclosures Required

Federal Register
  • Public real estate companies will also be required to disclose the board of directors’ oversight of cybersecurity threats, identify any board committee (or subcommittee) responsible for cybersecurity oversight, and the processes by which the board or (sub) committee is informed about these risks.
  • The final SEC rule will become effective on September 5, according to a notice today in the Federal Register. All registered public companies, other than smaller reporting companies, must begin complying by Dec. 18, 2023.

The Roundtable’s Homeland Security Task Force will remain engaged with government officials and private sector partners on industry best practices to detect, protect, and respond to a variety of key threats, including cyber-attacks.

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Reports Confirm Challenges in Scope 3 Reporting

Houston skyline

Reports released this month show the challenges companies face to quantify indirect “Scope 3” GHG emissions that emanate from an organization’s value chain. These studies support recent remarks from U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler that Scope 3 reporting is not “well-developed,” and “adjustments” could be made to the agency’s highly anticipated climate risk reporting rule. (CNBC, March 6 and Roundtable Weekly, March 10)

Reporting Categories

  • A report from environmental disclosure platform CDP examined survey responses from more than 18,700 companies. CDP found that a company’s limited influence over emissions in its supply chain, lack of data, and/or low-quality data are the biggest challenges for Scope 3 disclosures. 
    • CDP’s report noted that only 41% of responding companies reported on at least one of the 15 Scope 3 “indirect” emissions categories. In contrast, 72% of CDP-responding companies reported Scope 1 (“direct”) and/or Scope 2 (“electricity”) emissions. (ESG Today, March 15) 
    • The most commonly reported Scope 3 emission category (42%) reported by all sectors in was emissions from “business travel,” perhaps the easiest category to calculate. (CDP, Scope 3 Categories by all Sectors)

Real Estate & Scope 3

Scope 3 real estate sector percentages
  • A technical note to CDP’s report, above, provides statistics specifically on Scope 3 disclosures from building developers, owners, and REITs. According to CDP:
    • Scope 3 emissions on average contribute over 85% of a commercial real estate company’s entire footprint.
    • Embodied emissions from construction materials (steel, concrete) was the most significant Scope 3 category reported by 156 real estate companies.
    • “Downstream” emissions from tenants was the second most significant category, comprising 27% of total Scope 3 emissions and 25% of total Scope 1+2+3 emissions. 

Executives on Scope 3

Workiva-PwC report cover
  • A separate Workiva/PwC survey, above, on expected SEC disclosure requirements and ESG reporting compiles the responses of 300 executives at U.S.-based public companies.
  • Key findings from the “Change in the Climate” report include:
    • 95% of corporate executives say they are prioritizing ESG reporting more now than before the SEC’s proposed rule.
    • 36% don’t feel their company is staffed appropriately to meet the SEC’s proposed disclosure rule.
    • 60% of respondents said they would need an extra 1-3 years to estimate and report on Scope 3 emissions—after any Scopes 1 and 2 requirements take effect.
    • 61% of respondents believe the SEC rule will cost their companies at least $750K in the first year of compliance. 

Separately, Senate Majority Leader Chuck Schumer (D-NY) this week commented on a proposed House of Representatives energy package (H.R. 1), which focused on measures impacting fossil fuels, as a “non-starter” for congressional negotiations. (Politico, March 15) 

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SEC Chair Indicates Possible Scale-Back of “Scope 3” Emissions Reporting

SEC Chair Gary GenslerU.S. Securities and Exchange Commission (SEC) Chair Gary Gensler commented on March 6 that the agency’s forthcoming rule on climate reporting may be scaled-back, including its proposal for sweeping disclosures on Scope 3 GHG emissions, according to CNBC.

Scope 3 Proposal 

  • Scope 3 refers to indirect emissions that are part of an organization’s value chain but not owned or controlled by the reporting company. The 2022 SEC proposal would require corporate issuers of securities to estimate and report Scope 3 emissions “if material” in 10-Ks and other filings. (SEC News Release, March 22, 2022)

  • Roundtable comments submitted last June called the SEC’s proposed treatment of Scope 3 disclosures a “back-door mandate” and urged the agency to drop it. (Roundtable Weekly, June 10, 2022)

  • The SEC’s final rulemaking process is ongoing. Gensler acknowledged that the agency received a record 15,000 public comments and “adjustments” to the proposed rule were likely. (Bloomberg Law, March 6; CNBC, Feb 10)

  • Some stakeholders have signaled potential litigation by questioning whether the SEC has “clear” legal authority to regulate climate matters in light of recent Supreme Court precedent. (SCOTUSblog, June 30, 2022 | Pensions & Investments, March 7, 2023)

  • Gensler told POLITICO this week that any final climate rule must be “durable” and “sustainable.” “It doesn’t protect investors … if we have a rule overturned in court,” he said.

Congress Weighs In 

U.S. Capitol
  • The SEC’s climate rule is the focus of dueling letters by members of Congress. Democrats wrote in a March 5 letter that the agency should not “soften” or “scale back” proposed climate discloures. Reports that the SEC might “curtail” Scope 3 reporting, among other matters, are “deeply concerning,” the Democrats wrote.

  • Republicans wrote to Gensler on Feb 22, stating the proposed rule exceeds the Commission’s authority. The GOP letter states, “Congress created the SEC to carry out the mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation—not to advance progressive climate policies.”

A final rule is anticipated from the SEC this spring. The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will continue to track any developments on the agency’s proposed rule and other climate-related regulatory proposals affecting CRE.

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