For the past 2 months, oil and gas lawyers here have been combing through the US Securities and Exchange Commission’s (SEC's) draft climate reporting rule, trying to figure out exactly what it means for an industry with one of the largest carbon footprints on the planet.
The rule would require publicly traded companies to report not only their greenhouse gas emissions but also their approach to managing climate change, likely setting up a long legal fight with polluting industries.
But despite the SEC's objective of standardizing climate reporting to allow investors easily comparable data, the almost 500-page rule is rife with loopholes and other provisions allowing polluters to take creative license in how they report their carbon footprints and the risk climate change poses to their business, according to experts studying the draft rule.
“For the most part, the climate proposals are very vanilla,” said Thomas Gorman, a former SEC investigator and now a regulatory attorney in Washington. “It’s mostly. ‘Tell us what you do.’ If you’re an oil company, you have problems with wells, so you have to take into account climate change. But they didn’t tell anyone you have to do it this way or you have to do it that way.”
The rule is not final; the SEC extended the public comment period another 30 days last week. But as it stands, companies will not have to comply with a uniform approach to reporting their greenhouse-gas emissions, as activist investors might have hoped. Instead, companies would decide how to count emissions on the condition they explain how they came up with the number.
It’s a substantial step up from the current voluntary system, where not all companies report and those that do use a variety of reporting platforms where the methodology on data collection is not always clear, said Andrew Logan, a director at the Boston-based activist firm Ceres, which advises on sustainable investing.
“It gives companies a lot of flexibility about how they disclose, but the thing is they don’t have the choice not to disclose, as many of them have,” Logan said. “Eventually we’ll end up in a place where climate reporting is more standardized, but first we need to show people how to walk. It’s raising the floor rather than the ceiling.”
It will, however, not make things easy for investors trying to compare emissions between industries and companies, forcing them to go through the fine print to figure out how companies are counting their carbon dioxide emissions and whether their emissions are in fact larger or smaller than those of their peers.
“If you’re going to compare a Kool Aid stand to an oil company, good luck,” Gorman quipped.