Power Lunch: A Burdensome Climate Disclosure Rule

When the U.S. Securities and Exchange Commission (SEC) released its proposed rule on climate disclosure in the spring, it raised red flags at the International Dairy Foods Association (IDFA).

IDFA believes the rule – The Enhancement and Standardization of Climate-Related Disclosures for Investors – will act as a barrier to entry for some businesses, especially smaller food companies, due to the extreme financial burdens it will place on companies to measure and report GHG emissions.

While the rule is meant to apply to publicly traded companies, those of us working in food manufacturing know that all publicly traded companies source their goods and services from many private entities, from individual farms to trucking and transportation companies to equipment manufacturers. Under this SEC rule, all those private companies will be required to share their GHG emissions data with their publicly traded customers. IDFA does not take a position on the rule itself, but we have strong feelings on the substance of the rule.

In particular, the SEC does not account for the financial and market burdens it places on businesses. Moreover, the SEC asks all businesses to comply with its reporting requirements in just a few years—an unusually compressed timeline.

In talking with colleagues across food manufacturing and food production, it was clear that this rule arrived suddenly. The SEC had done little to no outreach to food and agriculture in advance of releasing the rule. If they had, the SEC would have learned that the U.S. dairy industry has committed significant resources to achieve ambitious environmental stewardship goals, including GHG neutrality, optimized water use and improved water quality by 2050.

IDFA encourages the SEC to engage the food manufacturing sector and agriculture to learn more about how our businesses and employees are working each day to deliver nutritious, affordable, sustainable nutrition to people everywhere. But should the SEC move forward with the climate disclosure rule, it is critical that the agency build in additional time for companies to comply.

Because Scope 3 GHG emissions are so complex, we urge the SEC to expand the Scope 3 safe harbor period offered in the proposed rule.

In our comments, IDFA raised weaknesses in the proposed rule that challenge the dairy industry’s ability to comply with the proposed regulatory requirements. As proposed, the rule would threaten to become onerous and put significant financial burdens on millions of companies and businesses that fall outside the SEC’s regulatory jurisdiction. For example, IDFA flagged the following in the proposed rule:

The SEC’s lack of engagement with the dairy value chain.

The proposal’s lack of analysis of the economic and market effects on privately held and small entities directly impacted by the rule.

Rather than reconcile the various GHG reporting schemes out there, the rule adds additional requirements.

There is no recognition by the SEC that small and some medium-sized businesses lack the technical expertise and financial resources to measure and report GHG emissions, especially in the condensed timeline required by the proposed rule.

And, finally, the rule moves much too quickly toward implementation, prompting IDFA to request additional compliance time overall and more flexibility for companies reporting Scope 3 GHG emissions.

Currently, the SEC is reviewing comments in anticipation of releasing a final rule sometime this winter. It is our hope, in light of stiff resistance by many industries and serious inquiries by key members of Congress, that the SEC will repair what is a missed opportunity to improve flexibilities that would help companies measure and report climate emissions data, and ultimately achieve the climate emissions reduction goals we collectively share.