Commercial Real Estate Slaps Back at SEC Climate Rule Proposal

For years, the SEC has been talking about requiring some sorts of climate disclosures. By late spring of 2022, it looked as though the agency would finally do it and then came the proposed rule that was open for comments. And, wow, did they come.

More than 10,000 individuals and organizations weighed in, according to the Real Estate Roundtable, including many from commercial real estate.

For example, the CRE Finance Council, among other things, criticized a potential adoption period for the new rule of December 2022. “Given the breadth and depth of the proposed requirements, a year-end adoption date is very aggressive,” the group wrote. “For context, the Partnership for Carbon Accounting Financials (“PCAF”), a framework cited by the SEC in the Proposed Rule, has a three-year implementation period for organizations that opt-in to the program. CREFC believes that the final rule should be subject to a longer implementation period to allow market participants to continue to develop best practices over time.”

The National Association of Realtors pointed out a lack of guidance regarding independent contractors, a status that many in the field use, providing services to agencies while being self-employed. “Should publicly-traded real estate companies attempt to account for the emissions of each of their agents and brokers?” the organization asked.

Nareit argued that “materiality, as evaluated through the eyes of a ‘reasonable investor’ under the prevailing legal standard, should govern the climate-change related disclosure required of REITs and other registrants,” rather than a broader standard that could expand into virtually endless reporting requirements.

The Mortgage Bankers Association suggested making scope 3 emissions voluntary rather than mandatory “because Scope 3 disclosure is an evolving concept: Scope 3 carbon accounting guidance is incomplete, applying the concept of materiality to Scope 3 emissions is novel, and the burden of reporting Scope 3 will be very high.”

The Real Estate Board of New York stressed that companies should not have to report on sources they neither own nor operate. “For real estate, this means that building owners should be under no requirement to report on the emissions of building tenants who are not in the same corporate structure as the registrant. For building owners, these types of emissions would appropriately be considered Scope 3 emissions. Of note, the practice of those of our members who own buildings in Europe is to define tenant emissions as Scope 3 emissions of the building owner.”

There were many more comments on a proposed rule package that runs 490 pages in total. “If the rule is finalized, compliance would phase-in over the next several years,” the Real Estate Roundtable wrote. “All SEC registrants would be required to quantify their greenhouse gas (GHG) emissions and assess the economic impact of rising sea levels related to their assets through annual 10-Ks and additional filings.” 

While there will be changes to the proposed rules, some form of them will be finalized.