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Comments on the SEC Proposed Climate-Related Disclosures
The following comment was submitted to the U.S. Securities and Exchange Commission regarding their Proposed Rules to Enhance and Standardize Climate-Related Disclosures for Investors.
Scope 3 reporting is difficult, confusing and prone to error. I recommend that the SEC concentrate on Scope 1 and Scope 2 emissions. Problems to do with Scope 3 reporting include the following:
The reporting company will be evaluated on the performance of suppliers and customers over whom it has no direct control.
The data from suppliers and customers may be inadequate, incorrect, difficult to understand, out of date, or simply missing.
Scope 3 emissions are someone else’s Scopes 1 and 2. There is a potential double-counting problem. Who gets the credit for what?
Supply chains are typically very long. How far back or forward does a company have to go to define the reporting boundaries? Few companies have the time or resources for such an effort.
Upstream or downstream benefits may not what they are perceived to be. For example, a company may claim credit if its products are used by an automobile manufacturer that switches from making diesel to electric vehicles (EVs). Yet, it is not certain that EVs are better for the environment if all the costs associated with their manufacture, operation, maintenance and final disposal are considered.
A related difficulty arises when comparing initiatives. For example, how much relative credit is to be given to companies that produced EVs powered by batteries and those powered by hydrogen?
The implementation of programs to reduce greenhouse gas emissions could lead to increased business. Customers may purchase that company’s products because they support its climate initiatives. Consequently that company’s emissions may actually increase. A better measure of progress would be emissions per dollar of sales.
It is difficult to evaluate Scope 3 emissions if a company sells directly to the final customer who disposes of the product in a waste facility after he or she has used it.
The proposed rule does not consider the implications of Jevons’ Paradox — the idea that saving a resource in one place may be negated by increased use of that same resource somewhere else.
For all these reasons I recommend that reporting on Scope 3 emissions be deferred until Scopes 1 and 2 are completed. I conclude this comment with sensible words from the U.S. Environmental Protection Agency.
Scope 3 emissions for one organization are the scope 1 and 2 emissions of another.