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While the Securities and Exchange Commission is busy defending its final climate-risk disclosure rule in court, members of the agency have begun the work of educating relevant stakeholders and potential reporting companies on what will be required of them.

To clear up confusion and take questions on the rule from interested parties, SEC Corporation Finance Division Director Erik Gerding and Chief Accountant Paul Munter spoke Monday at a briefing on the rule hosted by environmental nonprofit Ceres.

Currently, the agency has voluntarily stayed the rule while it faces nine court challenges that have been consolidated and are set to be heard by the U.S. Eighth Circuit Court of Appeals. Most of the challenges question the SEC’s authority to issue the rules. There are also two from environmental groups who oppose the agency’s exclusion of scope 3 reporting and smaller universe of scope 1 and 2 reporting companies.

Gerding clarified that the final rule contains no requirements for scope 3, despite some public assertions and questions about whether it was stealthily included in the rule through transition plan disclosures or targets and goals disclosures in the final rule. Tennessee Republican Rep. John Rose expressed concerns that “aspects of scope 3 [were] essentially backdoored into the rule” at a House Financial Services Committee field hearing last month

However, Gerding said any companies that disclose emissions generated by supply chain entities they neither own nor operate will do so on an entirely voluntary basis.

“Although the adopting release is very clear on the point, to address any remaining uncertainty, I have to reiterate that none of the final rules mandate scope 3 emissions disclosure,” Gerding told webinar attendees.

The final changes came after the agency received more than 24,000 public comments. Gerding said the impact of those comments on the shape and substance of the final rule are shown through the adopting release’s footnotes. 

“Pay attention to the footnotes, because the footnotes explain a lot about the responses the commission made to comments or concerns,” Gerding said. “And not just sort of the changes to the proposing release, but the final provisions that the commission did decide to adopt.”

The agency also received comments on its proposal to have companies do line-item disclosures for weather or climate-related expenditures that accounted for more than 1% of the line item, Munter said. He said “many” of the commenters who provided feedback on the topic were unsupportive, and “a number of the commenters asserted that it would not be feasible” as proposed. 

Commenters’ concerns on the feasibility of compliance and the potential that updating financial accounting practices would be “burdensome,” led the agency to adopt a “significantly narrower set of requirements” for registrants. The final proposal requires registrants to disclose weather or climate-related expenditures that are already recorded in their records. Munter said that by focusing on existing records, the agency expects “these requirements would be feasible for registrants to disclose under the current financial reporting processes.”

Edison Electric Institute Chief ESG Officer Richard McMahon — also EEI’s senior vice president of energy supply and finance — said at Monday’s webinar that both of the changes were well received within the trade association. EEI’s members are all U.S.-based, investor-owned electric companies, and McMahon said the membership is moving towards compliance with the rule.

McMahon said he thought it was “appropriate” that the SEC removed scope 3 requirements, and “the inherent inaccuracy and the inconsistency within scope 3 is what really caused a lot of concern amongst investors.” He said the elimination of line-item accounting for climate risks was “very appropriate” in order to not overload everyday investors with unnecessary information.

“Obviously, there are a lot of sophisticated investors out there also, but at the end of the day, I feel like you need to have a rule that also meets the needs of the retail investor,” McMahon said. “So striking that balance is very important.”

EEI announced in March that McMahon will retire June 30.