Sierra Club to SEC: Investors Increasingly Rely Upon Scope 3 Emissions

WASHINGTON, DC — The Sierra Club has submitted additional comments to the Securities & Exchange Commission on its proposed climate risk disclosure rule. The advocacy group’s March 31, 2023 letter highlights recent developments that strengthen the rationale for the proposed rule, including that investors and other market participants increasingly rely upon Scope 3 emissions disclosures to evaluate business risk. Read the comment letter here.

“Our purpose is to highlight a new analysis of Scope 3 greenhouse gas emissions disclosure policy and practice by Madison Condon, Associate Professor at Boston University Law, to be published in UC Davis Law Review. Professor Condon makes a compelling case for including a robust Scope 3 disclosure requirement in the climate risk disclosure rule,” read the letter.

This new analysis by Madison Condon, Associate Professor at Boston University Law, includes the following key points: 

• Multiple, specific “use cases” for Scope 3 emissions disclosures have emerged and are increasingly relied upon by investors and other market participants, including performance by executives whose compensation is tied to emissions reductions, and progress on emissions reductions among companies in the portfolios of fund managers with so-called “climate-aligned” offerings. 
• Investors and academic experts are concerned that — consistent with the common practice of firms using legal tools and accounting loopholes to escape disclosure of legal and financial risk — outsourcing of Scope 1 emissions will increase if Scope 3 emissions are excluded from a mandatory reporting regime. This would in turn distort investor evaluation of transition risk. 
• Scope 3 emissions disclosures are generally seen by investors and other market participants as insufficient by themselves to allow evaluation of firms’ climate risk, with investors using Scope 3 emissions data along with other data in their investment analysis. However, data challenges have not led to the reduction in investors’ demand for reasonable estimates of Scope 3 emissions.

The Sierra Club’s previous comments to the SEC are available online:

• February 2023 supplemental comments on the climate risk disclosure rule here
• November 2022 supplemental comments on the climate risk disclosure rule, ESG disclosure rule here 
• August 2022 original comments on the ESG disclosure rule and fund names rule here
• June 2022 original comments on the climate risk disclosure rule here 

###