The Securities and Exchange Commission (SEC) requires companies registered to trade on U.S. stock exchanges to disclose financial statements and details of their business operations to investors and the public. In 2010, the SEC issued voluntary guidance on how SEC registrants should disclose climate-related financial information. However, investors complained to the SEC that the voluntary guidance did not elicit information that was adequate and comparable among companies for making investment decisions. As a result, in 2022, the SEC proposed a rule to update and expand its 2010 guidance. In June, IATP submitted comments on the proposed rule and noted that opposition to the proposed rule included misinformation about its specific content.
Most of the agribusiness criticisms of the proposed rule focus on greenhouse gas emissions reporting, which is an indicator of the scale of climate-related financial risk to be managed by SEC registered companies and reported to existing or prospective investors. Only a few companies, such as Tyson and Corteva (a global pesticide and genetically engineered seed company), responded directly. (Tyson’s arguments included that “disclosures may chill innovation and lead to competitive harm.” According to Corteva, “Even if the Proposal were workable, we do not believe these costs burdens are justified through any benefit to shareholders.”) Instead, agribusiness criticisms are represented by organizations with farmer and rancher members who are not subject to the proposed rule’s requirements.
For example, representatives of the American Farm Bureau Federation (Farm Bureau), the National Pork Producers Council, the National Beef Cattlemen’s Association and three lawyers from Sidley Austin met with a SEC staffer on May 5. As briefly memorialized by the SEC: “During the meeting, the attendees asked questions about the proposed Scope 3 disclosure requirements for publicly traded companies and the potential impacts on companies within their supply chains.” Why aren’t the publicly traded agribusiness companies asking their own questions publicly? Why do they need farmers and ranchers to front for the companies to whom the companies sell inputs or for whom the farmers and ranchers supply raw materials?
To judge by the comment letters from these groups (and the agribusinesses they apparently represent), the SEC should withdraw the entire rule. Failing that, the agency should remove all Scope 3 (value chain) emissions disclosure requirements from the rule. The Farm Bureau state chapters sent the SEC variations on a form letter that mirrored agribusiness concerns, differing only in the description of the commodities produced by the state chapter’s members. Per one form letter, for example, “Missouri Farm Bureau unequivocally opposes the Proposed Rules and believes they would be wildly burdensome and expensive if not altogether impossible for many small and mid-sized farmers to comply with, as they require reporting of climate data at the local level. When farmers and ranchers cannot afford the overhead required to comply, they may have no choice but to consolidate or exit the business.” No member of the Missouri Farm Bureau or any farmer is a SEC registered company that would have to report Scope 3 emissions or comply with any other SEC requirements. However, the message from Farm Bureau to its state chapters is that the SEC proposed rule — and not the prolonged droughts, extreme heat and flash floods exacerbated by climate change — is an existential threat to farmers and ranchers.
A June 17 letter from the Farm Bureau and nine farmer lead commodity trade associations adds additional arguments to the Missouri Farm Bureau letter’s demands. The commodity group letter concludes that the proposed rule could become subject to litigation to prevent its finalization. The not too subtle litigation threat states: “In addition to the concerns with the specifics of the proposal, we urge the Commission to consider whether it has the legal authority to implement the Proposed Rules. For one, requiring this type of expansive disclosure raises questions under the compelled-speech doctrine. . . Because of the magnitude of the SEC’s proposal that cuts across every aspect of the U.S. economy – and beyond – the Commission should consider whether this is a matter for the Congress to act or direct, before embarking on this rulemaking.”
The first cause of purported litigation, the “compelled speech doctrine,” would ask the courts to evaluate disclosure reporting requirements in the proposed rule as a violation of the “free speech” clause of the First Amendment of the U.S. Constitution. The second cause would ask the courts to invoke the “major questions” doctrine to set aside the SEC’s long-established authority to require financial and financial-related disclosures, such as business plans. If “major questions” based litigation were successful, Congress would have to authorize, or not, the SEC to propose a disclosure rule according to congressional specifications. A recent op-ed argued that the Supreme Court “major questions” based ruling in EPA v. West Virginia against the EPA’s authority to regulate energy generation in power plants would not apply to the proposed SEC rule because of the long history of compliance by publicly traded companies with many other SEC disclosure requirements.
The Food Industry Association (formerly the Food Marketing Institute or FMI), although a member with Farm Bureau of the Food and Agriculture Climate Alliance, did not “unequivocally oppose” the proposed rule. FMI’s large associate membership list is searchable and shows a predominance of food retail and ingredient companies, with a few agribusiness input companies such as Bayer. The FMI letter notes that many of its member companies already voluntarily report climate-related financial disclosures to the international Task Force on Climate Related Disclosures (TFCD), which serve as a model for much of the proposed rule.
FMI urged the SEC to increase the compliance deadline and to provide more specificity about the determination of climate change “material impact” on value chains. FMI provides the following illustration to justify its requests: "When you look at the food retail aspect of the value chain, a grocery store averages over 30,000 distinct items and larger models can easily exceed 45,000. Large retailers have thousands and sometimes tens of thousands of suppliers located all over the United States and the globe. Under these circumstances any kind of granularity around the supply chain is extremely difficult to achieve and would result in literal [sic] volumes of disclosure."
The proposed rule does not mandate per product nor per retail outlet disclosures, but instead requires SEC registered companies to use standardized protocols to estimate the greenhouse gas emissions for downstream activities, such as the suppliers’ annual energy use in food manufacturing, packaging and shipping. Scope 1 (registrant’s direct emissions) and Scope 2 (purchased energy) emissions are relatively easy to estimate. SEC registrant expenditures to manage those estimates are likewise relatively easy to calculate and report to investors in standardized SEC forms.
The SEC acknowledges that collecting, aggregating and reporting Scope 3 emissions data is more technically difficult. Accordingly, the SEC provides companies safe harbors from litigation and phased in compliance times. Scope 3 includes emissions from upstream sources linked to the SEC registrant’s value chain, e.g., emissions from cattle slaughtered by meatpackers and downstream emissions, such as those linked to packaging and transporting beef products for retail distribution. FMI insists that “collecting farm or ranch-level emissions data to construct a Scope 3 figure is currently impractical.” To reiterate, the proposed rule does not require SEC registered companies to collect such data directly from the farms or ranches that supply them with raw materials.
The Environmental Protection Agency (EPA) and the industry developed and widely used Greenhouse Gas Protocol already have such “sophisticated technological systems to track emissions” in the industry wide estimate methodologies that the proposed rule recommends SEC registered companies use. Notwithstanding the “voluntary and market-based incentives” to reduce agricultural emissions that the Farm Bureau and commodity groups praise, the EPA continues to report rising U.S. agricultural emissions, as IATP has recently summarized for methane. If an agribusiness doesn’t wish to use EPA’s Scope 3 methodology, it can use the Greenhouse Gas Protocol or another science-based, widely used methodology.
Agribusinesses are wrongly fighting the wrong battle by enlisting farmers and ranchers to falsely claim that the SEC climate disclosure rule applies to them. Companies refusing to report climate costs and risks to their investors won’t diminish those costs. The proposed rule also allows companies to report their climate-related opportunities, including new goods, services and investments. IATP recommended in our comments that good faith reporting of climate-related opportunities should receive a safe harbor from litigation, as other forward-looking disclosures are given safe harbors. However, investors are far more likely to invest in such opportunities if companies also disclose their climate-related financial risks and costs, as well as their plans to manage those risks and costs.
Litigation to prevent the implementation of the proposed rule, particularly if successful, will only increase the scale of damage and the difficulty of managing a company’s climate-related risks. Everyone in the company’s value chain, including farmers and consumers, will be harmed by climate change denial through litigation. Rather than fighting the proposed rule — especially provisions that don’t even apply to farmers — agribusinesses should disclose the information needed to manage their climate-related risks with minimal disruptions to their operations, value chains and the communities in which they are located.