Tech Will Be Key for SEC Climate Disclosures

The newly passed greenhouse gas disclosure rule from the Securities and Exchange Commission will have a significant impact on many industries, including commercial real estate.

Probably the biggest change between the initial rule and the final version after the required public comment period is the modification of what has to be reported. There are three types of emissions. Scope 1 are those directly generated by a company. Scope 2 are created by electricity, heat, cooling, and other services a company uses. Scope 3 emissions are those attributable to supply chains.

Initially, all three were to be included, but the SEC dropped the Scope 3 after significant volumes of negative comments.

“I think the Scope 3 reporting requirement potentially would have resulted in two worlds merging much quicker: those with large shareholders pushing for reporting and those without such pressure,” Jameson Hartman, vice president at RET Ventures, tells GlobeSt.com. “Now, those without shareholder impetus will have a bit of respite to assess the likely long-term requirement and avoid making expensive, time-consuming investments in data auditing, collecting, and reporting.”

Well, maybe, if operations are focused in the right locations. The SEC rules are not the only ones companies might have to face. “California’s recent legislation (SB-256, SB-261 and AB-1305) already impacts many public and private companies within the U.S., including those operating in California with over $1B in revenue, those operating in California with over $500M revenue, as well as those operating in California that sell or use voluntary carbon offsets to make green claims,” Bill Harter, principal ESG solutions advisor at Visual Lease, told GlobeSt.com last week. “European climate disclosure laws and the ISSB Standards (IFRS S1 & S2), also apply not just to companies based in those jurisdictions, but those that are operating there, as well,” he continued. “If those that operate internationally are putting Scope 3 emissions on their disclosures, they need to be able to back up their claims with actual data. The biggest mistake that these organizations can make is to assume that they can pump the brakes on their environmental reporting efforts just because the SEC is pulling back on Scope 3.”

Any business having to report on Scope 3 emissions will need technology.

“I think the key question should be, ‘What is the right approach to getting this data?’” Hartman says. “Should owners be deploying hardware, boots on the ground, etc., to collect data that they otherwise could get via an API or other form of software? It seems quite wasteful to tell owners that they need to report data that may already exist in their utility’s database.”

That’s for Scope 1 and 2. Where things get vastly complicated is in Scope 3, because now a company has to depend on proper data collection and delivery from all the members of its supply chain. If a business comes under the California or EU requirements or has to satisfy investors or tenants who need to know, time is running short.