If you want the inside scoop on which companies are serious about addressing their carbon emissions and which aren’t, take a look at the public comments submitted to the U.S. Securities and Exchange Commission regarding its proposed climate rule.
You can tell if a company is serious by its stance on so-called Scope 3 emissions. Depending on the business, Scope 3 emissions might make up a significant majority of a company’s carbon footprint. Such emissions can result from activities and assets a company doesn’t own or control, like leased office space, business travel or end-of-life processing of their products. They also might occur when customers use their products, like when someone drives their gas-powered SUV.
In short, if your company is serious about doing something about climate change, it should probably be estimating its Scope 3 emissions. If it’s making noise about being sustainable, at the very least it probably shouldn’t undermine attempts to make Scope 3 disclosures standard.
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Which is why the comments on the SEC’s site make for some interesting reading. Companies ranging from Walmart and BlackRock to Fidelity, Gap, ExxonMobil and Southwest Airlines have made it clear that they’d rather not disclose their Scope 3 emissions, even with the safe harbor provisions the SEC is offering to limit liability. Those companies are effectively saying that they don’t take climate change seriously enough to fully understand — and disclose — their own impact on it.
There are many, many more companies that I’m not covering here that take a similar stance. So why am I singling these out? Walmart because it’s the world’s largest retailer. BlackRock and Fidelity because they’re the first- and third-largest asset managers. ExxonMobil because it’s the largest non-government-owned oil company. Gap because the company claims it “feel[s] an ethical responsibility to align our goals and strategies with the best science and industry practices,” according to its own climate values page. And Southwest because it is among the largest airlines in the U.S., no matter which measure you use.
Demur and delay
The arguments against disclosing Scope 3 data generally fall into three buckets: Companies complain that the data is too unreliable or uncertain, that it’s too hard to obtain or that it’ll expose them to lawsuits.
The first smells like a classic FUD campaign — fear, uncertainty and doubt. Cynthia Lo Bessette, Fidelity’s chief legal officer, told the SEC that Scope 3 data is “speculative, nascent, unreliable, and there are no current standards to ensure consistent and comparable data.”
Never mind the fact that the SEC’s proposed rule builds on the five-year-old recommendations issued by the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures along with the GHG Protocol, a widely used standard that has been around for more than 20 years. But maybe we should cut Fidelity some slack — it only issued its first environmental report last year. I asked the company how it arrived at its conclusion, but a spokesperson offered no comment.
Walmart took a similar tack, though the company’s much longer history with sustainability and climate leaves less room for sympathy. In comments to the SEC, a trio of Walmart executives, including Kathleen McLaughlin, the chief sustainability officer, said, “[w]e have come to believe that current Scope 3 reporting is unreliable and do not believe that the Commission’s proposal is likely to advance the maturity of reporting in the near term.” (When asked to clarify how Walmart arrived at this conclusion, senior director of communications Catherine Sanders directed me back to her company’s comments to the SEC.)
Apparently, Walmart thinks that if every publicly traded company in the U.S. started estimating their Scope 3 emissions, no one could develop a better way to do it in a reasonable amount of time. That’s a little hard to believe.
ExxonMobil, which is well versed in uncertainty campaigns, said Scope 3 disclosures “could actually lead to an overall increase in society’s emissions” by causing large companies to offload polluting business lines to smaller, less scrupulous companies. Sure, but if an oil company were to do that with all its Scope 3 emissions, it wouldn’t be an oil company anymore. (And Exxon very much wants to continue being an oil company.)
ExxonMobil also raised the issue of double-counting Scope 3 emissions. But that’s been addressed, and it’s less of an issue for investors, who are more interested in how exposed companies are to climate risk than an accurate, economywide estimate of carbon pollution.
ExxonMobil didn’t return my call before publication.
Other companies don’t question the data, but instead throw their hands in the air, claiming that it’s all just too hard. Mark R. Shaw, Southwest Airlines’ chief legal and regulatory officer, wrote that “it would be unduly burdensome to require companies to collect, analyze, vet, and publish comprehensive Scope 3 emissions based on primary data within financial filings.”
I’m not sure where he’s seeing a requirement for “primary data” since the SEC, in its proposed rule, said that it “recognize[s] that a registrant may sometimes need to use industry- and national-average data when calculating its Scope 3 emissions.” That doesn’t sound too hard.
A Southwest spokesperson countered that the airline’s concerns center around the SEC’s suggested reporting timelines, which would “likely push entities to draw more from secondary data (because it is easier and faster to obtain), which is less accurate and less informative.” The company would rather Scope 3 disclosures be voluntary.
Gap is pleading hardship, too, saying it can’t possibly get its hands on the necessary data. CFO Katrina O’Connell told the SEC that “we do not have the right or ability to gather more specific data from value chain entities with which we do not have a relationship (contractual or otherwise) and we cannot compel them to provide this information.” When pressed on this issue, a Gap spokesperson essentially repeated that statement, calling the suppliers in question “tertiary.” (I am not a lawyer, but this seems like exactly the sort of thing contracts could solve.)
To be fair, the garment industry is riddled with myriad small suppliers, and it is a challenging problem. But there are companies making strides on that front, companies like … Gap?
On the sustainability page of its corporate website, Gap says that “the vast majority of our climate impacts lie within our Scope 3 supply chain emissions” and that it “work[s] closely with our strategic suppliers” and “focus[es] on robust data collection from manufacturing facilities, product-impact modeling, and enhanced transparency to understand and pursue the biggest opportunities for emission reductions.”
“Robust,” so long as there aren’t any financial consequences for not being robust.
Which brings us to the third argument, that Scope 3 disclosures would increase companies’ liabilities. Gap’s O’Connell said that “variations in disclosed data” would make it less valuable to investors and thus wouldn’t be worth the additional liability to companies. Except in the same letter, she said that Gap has “worked with the industry to develop the tools, methodologies and assumptions to drive consistent, albeit delayed, reporting of emissions from Scope 3.” Have Gap’s own efforts been a failure? (On this point, the Gap spokesperson said that without clarity from the SEC about disclosure thresholds, the data would be too variable to compare.)
ExxonMobil is also concerned about added liability. No surprise there, given that it’s currently being sued by the commonwealth of Massachusetts for allegedly lying to the public about fossil fuels and climate change. In the company’s letter to the SEC, CFO Kathryn A. Mikells mentions liability concerns three times in 12 pages.
But my favorite letter was submitted by BlackRock. The company said that it loves to use Scope 3 emissions to determine the carbon risk for various companies they want to invest in. But sadly, three managing directors, including Paul Bodnar, global head of Sustainable Investing, wrote that they “disagree” with the SEC’s decision to require Scope 3 disclosures. BlackRock did not return a request for comment prior to publication.
Let me get that straight: BlackRock finds value in using Scope 3 emissions to vet its own investments, but it doesn’t want the SEC to require it so that other investors can use it. In a twisted sort of way, in a world where competition is all that matters, not how exposed the economy is to climate change, that actually makes sense.
Not all companies
These companies’ comments wouldn’t be so noteworthy if some of their competitors weren’t vastly more supportive of the SEC’s proposed rules, including Scope 3 disclosures.
Take Amazon. The company is hardly a paragon of climate action, but at least it supports the disclosure of Scope 3 emissions, which is more than Walmart can say. (Don’t give Amazon too much credit, though — it does say it would rather furnish than file the information, an accounting-level distinction that would further limit the company’s liability.)
Ralph Lauren, a company that, like Gap, deals with a complex network of suppliers, says that it “actively support[s] reporting on emissions, climate risks and energy transition activities” and that “while we recognize there are inherent challenges to accurately measuring scope 3 emissions, our value chain’s contribution to our GHG footprint is too important to ignore.”
There are plenty of asset managers that support Scope 3 reporting, too. These companies have their fingers in a range of businesses, which could make estimating Scope 3 emissions challenging. Perhaps that’s what BlackRock was objecting to? Yet several others support the SEC’s decision to include Scope 3 disclosures, including Vanguard, Allianz and Allianz’s PIMCO subsidiary. “We encourage the Commission to require Scope 3 reporting as soon as reasonably feasible,” PIMCO’s chief investment officer, Scott Mather, wrote.
Even companies that have carbon at the center of their business model don’t universally question the value of Scope 3 emissions. Chevron, in its comments, merely asked for an extra year to prepare the data. United Airlines also asked for more time to produce the data, but added that it “applauds” the SEC’s work, “including the disclosure of Scope 3 GHG emissions.”
It’s no surprise that some companies are balking at disclosing Scope 3 data. The SEC should pay no attention to their complaints — their peers’ support of the SEC’s rule effectively undercuts their objections. But everyone else should take note — companies that don’t want to acknowledge the entirety of their emissions probably aren’t that serious about tackling climate change.