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Small Businesses Applaud SEC’s Dropping of Scope 3 Reporting From Climate Disclosures Rules

S.J. Steinhardt
Published Date:
Mar 21, 2024

Despite widespread opposition from both sides of the issue, the Securities and Exchange Commission (SEC)’s final rules on climate-related disclosures have mollified many small businesses because they will not have to report on Scope 3 emissions, The Wall Street Journal reported.

Small businesses appreciated the SEC’s decision to drop Scope 3—the carbon footprint from supply chains and the use of their products—from the final rules. The concern among these businesses was that they would become part of their big customers’ compliance and accounting burdens. For many, the bulk of these emissions, which can account for more than 90 percent of the total, do not come from their own operations but from elsewhere in their value chain.

Earlier this month, the U.S. Court of Appeals for the Fifth Circuit temporarily stayed the rules. The U.S. Chamber of Commerce, one of the plaintiffs, argues that they are unconstitutional. The Journal predicted a protracted legal battle over the rules as lawsuits with similar arguments work their way through courts around the country.

Meanwhile, presuming that the rules will prevail, small businesses are grateful that a big reporting burden has been lifted.

“If they come to us and say we need to know what are your emissions of diesel engines or our ammonia refrigeration systems, that’s like ‘Holy cow, where do I start?’ Well, I’d hire a very high-price consultant,” said Bruce Lackey, chief executive of Grove City, Ohio-based food wholesaler Happy Chicken Farms and Merry Milk Maid, which sells to grocery chains,  in an interview with the Journal.

Proponents of mandatory Scope 3 reporting say the figures need to be included in corporate disclosures in order to provide investors with an accurate view of a company’s greenhouse-gas footprint. Detractors say Scope 3 is hard and expensive to measure accurately.

The SEC estimated that the average compliance costs for companies over the first 10 years could range from less than $197,000 to more than $739,000 a year.

Farmers are among those small businesses opposed to the Scope 3 requirement. Sen. Jon Tester (D-Mont.), who calls himself the only working dirt farmer in the chamber, deemed the SEC’s scaling back of its rules a win for farmers and ranchers, saying that “the last thing family farmers need is for big corporations or the federal government to force them to fill out piles of unnecessary paperwork,” according to the Journal.

“I was honest when I said there’d be farmers going out of business as a result,” said Ken Klippen, president of the National Association of Egg Farmers, who had submitted a comment to the SEC in opposition to Scope 3. “Let’s just say I feel better," he said after the SEC announced the rule modifications. "It’ll take some of the pressure off.”

The National Association of Manufacturers said the final rule “remains imperfect,” but the organization sees the removal of Scope 3 reporting as progress, the Journal reported.

Lackey told the Journal that he isn’t opposed to all environmental regulation but doesn’t see the value in requiring Scope 3 reporting.

“Hey, I’m all for clean air and water. But something like this, it’s almost a shotgun approach to something that is very difficult for even small businesses to understand,” he said. “This one was beyond unwelcome. It was truly unreasonable.”