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Landmark rule requires some companies to share how much they pollute. But it was scaled back

CNN  —  The Securities and Exchange Commission voted on Wednesday to pass a scaled-down climate reporting rule for public companies after the agency’s initial proposal was met with backlash from business leaders and some lawmakers. The finalized rule will require public companies to share how climate change might hurt their businesses. Some public companies will have to share how much they pollute, though the new rules no longer require companies to report some greenhouse gas emissions. During the SEC’s vote on the rule, chairman Gary Gensler said he thought the finalized rules would “produce more useful information to investors. Far more useful, I think, than what they get today.” Parts of the rule will take effect in 2025 and it comes amid a push by the Biden administration to tackle climate change. “This was a widely expected political compromise in an election year,” Shivaram Rajgopal, a professor of accounting and auditing at Columbia Business School said. A controversial proposal The source of much of the controversy surrounded a proposal to require companies to disclose scope 3 emissions, which are emissions a company is indirectly responsible for. An example: scope 3 emissions from an oil company might be the thousands of metric tons of carbon dioxide produced by gas-powered vehicles, even though oil companies do not produce cars. Critics have argued that tracking those emissions would be overly expensive and difficult for companies. The final version of the rule removes scope 3 from reporting obligations, instead requiring large public companies to disclose scope 1 and scope 2 pollution generated by their business operations only when a company determines that information is material, meaning that it is important information to share with investors. Scope 1 and 2 are direct and indirect greenhouse gas emissions produced as a company conducts its business, such as waste produced by a manufacturing process or how much air conditioning is used in an office building. Caroline Crenshaw, an SEC Commissioner who voted for the rule on Wednesday, criticized the agency’s decision to water-down the requirements. “This rule could have been more,” she said. The new rules also require companies to share physical risks posed by climate change, including the threat of rising natural disasters like wildfires or hurricanes.