The U.S. Security and Exchange Commission (SEC) is in the midst of preparing new guidelines for carbon emissions and other ESG data. While a draft release was promised for Q4, 2021, it appears to be coming out this quarter Q1,2022.
A recent story from CNBC provides the inside scoop:
- The regulations will cover Scope 3 emissions, those from the supply chain.
- Corporate groups worry about C-suite exposure to lawsuits as most companies don’t report Scope 3 emissions today and when they do, they rely heavily on secondary data sources.
Here’s a key quote from the article:
“Disclosing second-hand emissions data from suppliers and partners could also expose companies to litigation by both the third parties and investors, if the information transpires to be misleading”
A related story from RollCall assesses potential legal challenges to this type of SEC ruling and finds that the SEC is very likely to prevail in any challenge. Given that investors are relying on these carbon emissions disclosures, the SEC is well within their regulatory mandate to issue the regulations.
The bottom line: Everyone needs to get smart about primary and secondary sources of carbon emissions data. This is urgent. The final SEC regulations could be issued as soon as this summer.
Carbon Emissions Data from Primary Sources: A primary data source is one that an auditor can examine first-hand, one that establishes the verifiable amount of carbon emissions by amount, time and place. Utility bills and energy invoices (such as heating oil deliveries, petroleum deliveries and so on) qualify as a primary data source for Scope 1 and 2 emissions. Waste bills qualify as a primary data source for Scope 3 emissions.
Carbon Emissions Data from Secondary Sources: This includes industry averages, emissions factors by country-sector, and the parsing of these data sources into product-level emissions. If the source data is a third-party model at the aggregate data, it is a secondary data source. Unfortunately, almost all data used today in ESG and sustainability reporting is from a secondary source.
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