Climate Risk Reporting – The Real Estate Roundtable

SEC Commissioner and Key Senators Support Further Analysis of Climate Disclosure Proposal

Posted on November 9, 2023March 8, 2024 by Abigail Grenadier

One of the commissioners from the Securities and Exchange Commission (SEC) and two U.S. Senators suggested this week that further analysis may be needed for a highly anticipated SEC rule on climate reporting, which includes a proposal for sweeping disclosures on Scope 3 GHG emissions. (Bloomberg Law, Nov. 7 | SEC headquarters in Washington, DC, above)

Stakeholder Comments

Given that the SEC has received more than 16,000 stakeholder comments on the proposal, Republican SEC Commissioner Mark Uyeda said, “Before the Commission adopts any final rule that significantly deviates from the proposal, it should seriously consider re-proposing the rule with revised rule text and an updated economic analysis.” (Ayuda’s comments, Nov. 7 and The Hill, April 6)

SEC Chair Chair Gary Gensler indicated in March that the agency’s climate-related reporting rule may be scaled back. (CNBC, March 7 and Roundtable Weekly, March 10)

Senators Support Additional Feedback

Sen. Bill Hagerty (R-TN), left, and Roundtable Board Member Geordy Johnson (CEO, The Johnson Group) at The Roundtable’s 2023 Annual Meeting in June.

Sens. Bill Hagerty (R-TN) and Joe Manchin (D-WV) also expressed support this week for obtaining additional feedback about the SEC’s proposed rule. Sen. Manchin chairs the Senate Energy and Natural Resources Committee and Sen. Hagerty serves on the Senate Banking Committee. (Hagerty-Manchin letter and PoliticoPro, Nov. 9)

The lawmakers wrote to SEC Chairman Gary Gensler about recent California state laws that require companies to disclose their emissions, which beat the SEC to the punch on releasing final climate reporting rules. (Roundtable Weekly, Sept. 22 and The Real Estate Roundtable’s summary of the California legislation.)

The Senators’ letter states, “The interconnectedness of the California requirements and the SEC’s proposal is undeniable: thousands of businesses would end up being subject to both the California requirements and the SEC’s rule, if finalized. However, key differences between the two raise significant compliance questions that the SEC should thoroughly review.”

Roundtable Comments on Scope 3

Scope 3 refers to indirect emissions that are part of an organization’s value chain but not owned or controlled by the reporting company. The 2022 SEC proposal would require corporate issuers of securities to estimate and report Scope 3 emissions “if material” in 10-Ks and other filings. (SEC News Release, March 22, 2022)

Roundtable comments submitted in June 2022 emphasized that the SEC’s proposed directive, which would mandate that companies report on Scope 3 emissions “only if material,” is a “back-door mandate” that should be dropped. The comment letter added, “No registrant should be effectively required to report on indirect emissions beyond its organizational or operational boundaries.” (Roundtable Weekly, June 10, 2022),

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) plans to respond to any further developments on the SEC’s proposed climate disclosure rule or other climate-related regulatory proposals affecting CRE.

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Reports Confirm Challenges in Scope 3 Reporting

Posted on March 18, 2023October 27, 2023 by Trey Jackson

Reports released this month show the challenges companies face to quantify indirect “Scope 3” GHG emissions that emanate from an organization’s value chain. These studies support recent remarks from U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler that Scope 3 reporting is not “well-developed,” and “adjustments” could be made to the agency’s highly anticipated climate risk reporting rule. (CNBC, March 6 and Roundtable Weekly, March 10)

Reporting Categories

A report from environmental disclosure platform CDP examined survey responses from more than 18,700 companies. CDP found that a company’s limited influence over emissions in its supply chain, lack of data, and/or low-quality data are the biggest challenges for Scope 3 disclosures.
- CDP’s report noted that only 41% of responding companies reported on at least one of the 15 Scope 3 “indirect” emissions categories. In contrast, 72% of CDP-responding companies reported Scope 1 (“direct”) and/or Scope 2 (“electricity”) emissions. (ESG Today, March 15)
- The most commonly reported Scope 3 emission category (42%) reported by all sectors in was emissions from “business travel,” perhaps the easiest category to calculate. (CDP, Scope 3 Categories by all Sectors)

Real Estate & Scope 3

A technical note to CDP’s report, above, provides statistics specifically on Scope 3 disclosures from building developers, owners, and REITs. According to CDP:
- Scope 3 emissions on average contribute over 85% of a commercial real estate company’s entire footprint.
- Embodied emissions from construction materials (steel, concrete) was the most significant Scope 3 category reported by 156 real estate companies.
- “Downstream” emissions from tenants was the second most significant category, comprising 27% of total Scope 3 emissions and 25% of total Scope 1+2+3 emissions.

Executives on Scope 3

A separate Workiva/PwC survey, above, on expected SEC disclosure requirements and ESG reporting compiles the responses of 300 executives at U.S.-based public companies.
Key findings from the “Change in the Climate” report include:
- 95% of corporate executives say they are prioritizing ESG reporting more now than before the SEC’s proposed rule.
- 36% don’t feel their company is staffed appropriately to meet the SEC’s proposed disclosure rule.
- 60% of respondents said they would need an extra 1-3 years to estimate and report on Scope 3 emissions—after any Scopes 1 and 2 requirements take effect.
- 61% of respondents believe the SEC rule will cost their companies at least $750K in the first year of compliance.

Separately, Senate Majority Leader Chuck Schumer (D-NY) this week commented on a proposed House of Representatives energy package (H.R. 1), which focused on measures impacting fossil fuels, as a “non-starter” for congressional negotiations. (Politico, March 15)

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SEC Chair Indicates Possible Scale-Back of “Scope 3” Emissions Reporting

Posted on March 11, 2023November 8, 2023 by Trey Jackson

U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler commented on March 6 that the agency’s forthcoming rule on climate reporting may be scaled-back, including its proposal for sweeping disclosures on Scope 3 GHG emissions, according to CNBC.

Scope 3 Proposal

Scope 3 refers to indirect emissions that are part of an organization’s value chain but not owned or controlled by the reporting company. The 2022 SEC proposal would require corporate issuers of securities to estimate and report Scope 3 emissions “if material” in 10-Ks and other filings. (SEC News Release, March 22, 2022)

Roundtable comments submitted last June called the SEC’s proposed treatment of Scope 3 disclosures a “back-door mandate” and urged the agency to drop it. (Roundtable Weekly, June 10, 2022)

The SEC’s final rulemaking process is ongoing. Gensler acknowledged that the agency received a record 15,000 public comments and “adjustments” to the proposed rule were likely. (Bloomberg Law, March 6; CNBC, Feb 10)

Some stakeholders have signaled potential litigation by questioning whether the SEC has “clear” legal authority to regulate climate matters in light of recent Supreme Court precedent. (SCOTUSblog, June 30, 2022 | Pensions & Investments, March 7, 2023)

Gensler told POLITICO this week that any final climate rule must be “durable” and “sustainable.” “It doesn’t protect investors … if we have a rule overturned in court,” he said.

Congress Weighs In

The SEC’s climate rule is the focus of dueling letters by members of Congress. Democrats wrote in a March 5 letter that the agency should not “soften” or “scale back” proposed climate discloures. Reports that the SEC might “curtail” Scope 3 reporting, among other matters, are “deeply concerning,” the Democrats wrote.

Republicans wrote to Gensler on Feb 22, stating the proposed rule exceeds the Commission’s authority. The GOP letter states, “Congress created the SEC to carry out the mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation—not to advance progressive climate policies.”

A final rule is anticipated from the SEC this spring. The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will continue to track any developments on the agency’s proposed rule and other climate-related regulatory proposals affecting CRE.

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Advisory Panel Endorses SEC Proposed Disclosure Rule

Posted on September 23, 2022March 8, 2024 by Trey Jackson

A Securities and Exchange Commission (SEC) advisory panel on investor issues this week endorsed the agency’s proposed climate disclosure rule, including a requirement for registered companies to support Scope 3 indirect emissions “if material” to investors. (Bloomberg Law and advisory panel recommendation, Sept. 21)

Scope 3 & CRE

The Investor Advisory Committee’s recommendations are not binding, although the SEC could adopt final rules on corporate climate reporting requirements this fall. (BGov, Sept. 21)
The Real Estate Roundtable submitted comments on June 10 objecting to the Commission’s Scope 3 approach. The comments noted that real estate companies neither control nor have access to data regarding emissions from third parties in their “value chains.” (Roundtable Weekly, June 10 and June 24)
A joint industry letter filed on June 13 from 11 national real estate trade groups also opposed the SEC’s proposed approach, emphasizing that corporate disclosures on indirect Scope 3 emissions should be voluntary.

SEC Authority & EPA Funding

Litigation is expected to challenge any final Commission regulation—especially in light of a recent Supreme Court decision in West Virginia v. EPA that questioned whether the SEC has “clear” authority from Congress to regulate climate matters.
House Financial Services Committee Ranking Member Patrick McHenry (R-NC) and other Republican committee members wrote to SEC Chair Gary Gensler this week to request the SEC provide a list of all pending and upcoming rulemakings with the specific Congressional authority supporting each action. (Policymakers’ letter, Sept. 20)
Apart from the SEC, the Environmental Protection Agency (EPA) received a modest sum from Congress ($5 million) under the recently enacted Inflation Reduction Act (IRA) to help standardize voluntary corporate commitments to reduce greenhouse gas (GHG) emissions.
The new EPA funds are not “meant to create a parallel program … in case the SEC rule is scrubbed,” but will rather be used for climate models and software to hold companies “accountable” for the climate commitments they are already making. (BGov, Sept 21)
EPA backed the SEC’s climate disclosure proposal in a recent letter— stating the Commission has “broad authority to promulgate disclosure requirements that are ‘necessary or appropriate … for the protection of investors.’”

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will remain engaged with policy makers on climate risk disclosure rules that affect commercial real estate.

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Senators Challenge SEC Chair on Proposed Climate Rule

Posted on September 16, 2022March 8, 2024 by Trey Jackson

Senate Banking Committee members challenged Securities and Exchange Commission (SEC) Chair Gary Gensler, above, during an oversight hearing yesterday about the agency’s proposed climate disclosure rule. (CQ, Sept. 15 and Yahoo Finance, Sept. 16)

SEC Authority Questioned

Committee Ranking Member Pat Toomey (R-PA) opened the hearing by stating, “The SEC is wading into controversial public policy debates that are far outside its mission and its expertise.”
Toomey pressed Gensler about a June Supreme Court ruling that executive branch agencies “cannot use novel interpretations of existing law to pretend they have legal authority to support sweeping policy changes, including on climate change, that Congress never intended.” (Toomey Opening Statement)
Toomey asked, “In light of the EPA v. West Virginia case, have you given any consideration to rescinding that rulemaking?” Gensler replied that the Commission is “seriously” considering the high Court ruling and 14,000-plus public comments to assess its legal authorities to ensure that registered companies provide material, decision-useful information about climate risks to investors. (SEC docket with list of organizations and individual comments)

Senator Jon Tester (D-MT) explained that the SEC’s proposal would require farms and other small businesses to estimate and disclose carbon emissions because they sell products and services to public companies. Senators Mike Rounds (R-SD) and Steve Daines (R-MT) shared Tester’s concerns (CQ, Sept. 15)

A CRE Priority

The SEC’s climate proposal, if finalized, would require all SEC registrants to quantify direct GHG emissions (“Scope 1”) and emissions attributable to electricity purchases (“Scope 2”) through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
The SEC also proposed that a company would need to report on “Scope 3” indirect emissions if they are “material” to investors. In June 10 comments, The Roundtable objected to the Commission’s proposed Scope 3 approach because real estate companies neither control nor have access to data regarding emissions from third parties in their “value chains.” (Roundtable Weekly, June 10 and June 24)
A joint letter filed on June 13 from 11 national real estate industry trade groups echoed the issues raised by The Roundtable in its earlier comments.

The SEC is expected to issue a final climate reporting disclosure rule sometime this fall. If the Commission votes to regulate Scope 3 emissions, the recent SCOTUS decision in West Virginia v. EPA is likely to spark litigation, raising questions as to whether the SEC has authority from Congress to regulate climate disclosures and emissions.

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More than 10,000 Stakeholders—Including Members of Congress—Weigh in on SEC Proposed Climate Rule

Posted on June 24, 2022October 27, 2023 by Trey Jackson

Congressional lawmakers recently submitted comments to the U.S. Securities and Exchange Commission (SEC) regarding its proposed rule that would require all registered companies to disclose material financial risks related to climate change. Overall, the SEC has received about 10,000 responses on the climate reporting proposal. (AP, June 17, Wall Street Journal, June 21 and SEC docket with list of organizations and individual comments)

The Real Estate Roundtable submitted its comments to the SEC on June 10. (Roundtable Weekly, June 10)

Views from Congress, State AGs

More than 130 House Republicans wrote to SEC Chair Gary Gensler on June 15, asking him to rescind the climate disclosure proposal. “It is Congress’ job to set our environmental policy, not the job of unelected regulators,” according to the House letter. They have also called for a hearing on the SEC’s proposal. (E&E News, May 10)
A nearly equal number of House Democrats countered in their own letter, urging the SEC “to finalize the rule as quickly as possible.”
Over in the Senate, Republicans expressed their opposition in an April 5 letter.
Meanwhile, various Democratic Senators submitted several separate comments on June 17. One of their letters maintains that the proposal does not go far enough and should include a specific quantitative threshold for mandatory disclosures of Scope 3 emissions.
State Attorneys General have similarly expressed dueling opinions. (Democratic State AGs and Republican State AGs)

CRE Response

The Real Estate Roundtable’s June 10 comments were a focus of the June 17 meeting of The Roundtable’s Sustainability Policy Advisory Committee, chaired by Tony Malkin (Chairman, President and CEO of Empire State Realty Trust). (Roundtable Weekly, June 17)
Eleven national real estate industry trade groups, including The Roundtable, submitted a joint letter about the proposal on June 13.
Several of The Roundtable’s partner organizations also submitted individual responses. See letters from American Hotel & Lodging Association; Commercial Real Estate Finance Council; Mortgage Bankers Association; National Association of REALTORS; Nareit; National Multifamily Housing Council and National Apartment Association; and The Real Estate Board of New York.
The SEC received diverse perspectives across the spectrum of investor, environmental, business, and utility sector stakeholders, including letters from American Petroleum Institute, BlackRock, Business Roundtable, Ceres, Earthjustice, Edison Electric Institute, U.S. Chamber of Commerce, and World Resources Institute.
If the rule is finalized, compliance would phase-in over the next several years. All SEC registrants would be required to quantify their greenhouse gas (GHG) emissions and assess the economic impact of rising sea levels related to their assets through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)

The Biden administration is expected to push forward with a final rule that could be issued later this year.

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Roundtable Submits Comments to SEC on Climate Risk Disclosure Proposal

Posted on June 10, 2022November 8, 2023 by Trey Jackson

The Real Estate Roundtable submitted comments today to the U.S. Securities and Exchange Commission (SEC) on a proposed rule that would require all registered companies to disclose material financial risks related to climate change. The comments were developed with The Roundtable’s Sustainability Policy Advisory Committee (SPAC), chaired by Tony Malkin (Chairman, President and CEO of Empire State Realty Trust). (GlobeSt, March 22)

Extensive Climate Risk Disclosures

The SEC’s proposal, “Enhancement and Standardization of Climate-Related Disclosures for Investors,” is a key component of the Biden Administration’s efforts to cut U.S. greenhouse gas emissions. (CBS-AP | Bloomberg | Axios, March 21)
If the rule is finalized, compliance would phase-in over the next several years. All SEC registrants would be required to quantify their greenhouse gas (GHG) emissions, assess the economic impact of rising sea levels related to their assets, and report in SEC filings (for the benefit of investors) on these and other climate-related risks through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
The SEC’s extensive draft rule has raised significant concerns throughout the U.S. business community. (ClimateWire, June 2). The proposal includes new disclosure requirements for “Scope 3” GHG emissions, which are generated outside a business’ direct control by partners, suppliers, and consumers that make up the “value chain” of that business. (EPA Scope 3 Inventory Guidance and Fourkites).

Roundtable Response

The Roundtable’s comment letter is summarized as follows:
- Registered Companies Should Not be Required to Report on Emissions From Sources They Do Not Own or Control.
  When applied to the CRE context, this means that a building owner should not be under a mandate to report on emissions attributable to the operations of tenants in leased spaces. For example, emissions from metered electricity in a tenant-leased space should not be the CRE owner’s responsibility to report to the SEC.
- Create a “Safe Harbor” for Emissions Calculated with U.S. Government Data and Tools.
  Reporting companies should be protected by a “safe harbor” that insulates emissions disclosures from liability—in both SEC enforcement as well as private litigation—when calculations are based on the best, available, and most recent data and tools released by the federal government.
- There Should be No Scope 3 Reporting “Mandate.”
  Scope 3 disclosures typically depend on GHG data possessed by suppliers and other businesses in a reporting company’s value chain. Registrants should not be under any Scope 3 disclosure mandate because they frequently cannot get the basic data to quantify those “indirect” estimates.
- Wait Until a Registrant has a Full Year of “Actual” Data Before Requiring Emissions Disclosures.
  The proposal as written effectively requires two separate emissions disclosures each fiscal year. The SEC should only require emissions filings once a year—after a company has all of the “actual” data it needs to support and verify its calculations.
- Financial Risks from Severe Weather Events Should be Subject to “Principles-Based” Reporting—As Opposed to One-Size-Fits-All “Prescriptive” Rules.
  Risks from floods, droughts, and similar events should be subject to narrative, “principles-based” reporting. The SEC should drop its proposed “prescriptive” rule that registrants should precisely quantify impacts from climate-related events if they have a one-percent or greater impact on any line item in a financial statement.

Policymaker Concerns

The Biden administration is expected to push forward with a final rule that could be issued later this year.
Senator Joe Manchin (D-WV), chairman of the Senate Committee on Energy and Natural Resources, sent a letter to the SEC on April 4 outlining his concerns with the proposal.
Senate Republicans also expressed their opposition to the SEC proposal in an April 5 letter.
House Republicans have called for a hearing on the SEC’s proposal—signaling heightened oversight should they win the majority in this November’s mid-term elections. (E&E News, May 10)

The Roundtable’s comments to the SEC will be a focus of the SPAC meeting on June 17, held in conjunction with The Roundtable’s Annual Meeting.

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Real Estate Roundtable Requests Member Feedback on SEC Climate Risk Disclosure Proposal

Posted on April 8, 2022March 8, 2024 by Trey Jackson

Monday, April 11 is the deadline for responses to a voluntary Real Estate Roundtable membership survey on a proposed rule issued by the U.S. Securities and Exchange Commission (SEC), above, that would require corporate disclosures of climate-related financial risks. (Roundtable Fact Sheet, March 25)

The responses will influence The Roundtable’s comments to the SEC about the March 21 proposed rule. (Roundtable Weekly, March 25)
Roundtable members are encouraged to review The Roundtable’s fact sheet summarizing the SEC’s proposed rule before submitting responses.
The survey, originally sent on April 1, aims to obtain a high-level understanding of the existing practices and standards used by Roundtable members in assessing and quantifying:

greenhouse gas (GHG) emissions across portfolios,

buildings’ electricity use,

the impact of floods and rising sea levels to real estate assets,

tenant interactions about these issues, and

other questions that may require registered companies to report on their climate-related financial risks.

The proposed SEC rule has no immediate effect. If it is finalized, the action could have a significant impact on the real estate industry, requiring all SEC registered companies to report on climate-related risks through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)

If any Roundtable member has questions about the survey, please contact Roundtable Senior Vice President and Counsel, Duane Desiderio.

Policymakers & SEC Regulation

Several Senate Democrats support a more stringent SEC climate disclosure rule, including Elizabeth Warren and Edward Markey of Massachusetts. (Politico, April 5 and Markey news release, March 21)
Senator Joe Manchin (D-WV), chairman of the Senate Committee on Energy and Natural Resources, sent a letter to Commission Chairman Gary Gensler on April 4 outlining his concerns with the 506-page proposed SEC rule.
A group of 19 Senate Republicans from the Senate Environment and Public Works (EPW) and Banking committees expressed their opposition to the SEC proposal in an April 5 letter to Gensler.
While some opposition to the SEC’s proposed rule is mounting in Congress, particularly from the GOP, the Biden Administration is nonetheless expected to push forward with a final rule that could be issued later this year.

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will convene a working group that will review the SEC’s proposed climate rule and our comment letter response to the Commission.

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Roundtable Survey Seeks Members’ Input on SEC Climate Risk Disclosure Proposal

Posted on April 1, 2022March 8, 2024 by Trey Jackson

Real Estate Roundtable members received a survey earlier today that will help formulate comments in response to a proposed rule issued on March 21 by the U.S. Securities and Exchange Commission (SEC) regarding corporate disclosures of climate-related financial risks. (Roundtable Weekly, March 25)

Roundtable Member Participation

The Roundtable requests that members respond to the SEC climate issues survey by COB April 11.
Before submitting responses to the survey, members are encouraged to review The Roundtable’s fact sheet summarizing the SEC’s proposed rule.
The survey sent today aims to obtain a high-level understanding of the existing practices and standards used by Roundtable members in assessing and quantifying the following:
- greenhouse gas (GHG) emissions across their portfolios,
- their buildings’ electricity use,
- impacts to their real estate assets from floods and rising sea levels,
- how they interact with their tenants on these matters, and
- similar questions that will likely require registered companies to report on their climate-related financial risks.
If any Roundtable member has questions about the survey, please contact Roundtable Senior Vice President and Counsel, Duane Desiderio.

SEC Climate Risk Proposal

The proposed rule has no immediate effect. If the proposal is finalized, all companies registered with the SEC would be required to report, measure, and quantify “material” risks related to climate change in their annual Form 10-Ks and certain other filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
Compliance would phase-in over the next several years. For example, registrants with a global market value of $700 million or more would need to comply first for filings in FY 2024 (covering FY 2023 emissions).
“Limited assurance” from independent third party verifiers, regarding so-called Scope 1 and Scope 2 emissions, would be required for the first two compliance years. Thereafter, “limited assurance” would ramp-up to “reasonable assurance” at a level provided in a financial statement audit filed with a 10-K.
Indirect “supply chain” emissions – known as “Scope 3” – are considered the most difficult emissions to measure and quantify. Under the SEC’s proposal, reasonable efforts to report on Scope 3 emissions would receive a “safe harbor” from certain liability under federal securities laws. Also, third-party verification of Scope 3 reporting would be optional.

Stakeholder input on the proposed rule is due to the SEC around May 20. Themes raised by The Roundtable in pre-rulemaking comments submitted last year will likely be addressed again in this latest round of public input. (Roundtable Weekly, June 11, 2021 and (Roundtable fact sheet, March 28)

The SEC proposal, formally titled “Enhancement and Standardization of Climate-Related Disclosures for Investors,” is considered a key component of the Biden Administration’s efforts to cut U.S. greenhouse gas emissions by as much as 52% (below 2005 levels) by 2030. (CBS-AP | Bloomberg | Axios, March 21)

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