WASHINGTON D.C., DC — The U.S. House Committee on Financial Services hosted a hearing focusing on the Securities and Exchange Commission's proposed climate disclosure rule.
The hearing was hosted by Michigan Republican Congressman Bill Huizenga, who is the chair of the Subcommittee on Oversight and Investigations, alongside ranking member Al Green, a Democrat Congressman from Texas.
Committee members examined how the new rule, if enacted, would impact small businesses — including family-owned farms.
The SEC is looking to make it mandatory for companies to report "climate-related disclosures" to top investors, and report their environmental practices in relation to those.
Those in opposition said the rule was proposed with "limited economic analysis," with Huizenga stating in his opening statements that the SEC "wildly underestimated costs" to businesses.
Meanwhile, those in support said that people are increasingly wanting to know these practices before they decide to invest in a company.
Green said the current voluntary reports given by companies can be vague, and do not provide investors with an accurate sense of the "scale of the risk the company faces from climate change."
Bill Schultz, Vice President of Schultz Fruitridge Farms in Mattawan, testified the new rules do not take into account the unpredictable nature of farming, and would cost many small businesses too much money. He said they cannot be "subjected to regulations intended for Wall Street."
"Growing an apple is not like making a widget," Schultz said. "Farming presents variables that are rarely present in other businesses. An apple tree, for example, takes many years to start producing fruit that can be eaten. Weather events, or plant pests, and diseases, create hurdles year to year that would deeply complicate the reporting process. It is clear that the SEC did not account for these complexities and nuances of farms when writing this rule.".
The SEC released a press release when the rule was initially proposed in 2022, stating:
"The proposed rules also would require a registrant to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a registrant would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions."
Schultz said making reporting Scope 3 emissions mandatory for businesses like his would negatively impact small and local businesses, who would have to report emissions that they do not own or operate.
"I expect most family farms in America will be touched by this proposal because these farms' products end up in the value chains of public companies," Schultz said. "Whether it's a grocery store, a fertilizer company, a packer, or any of the other public companies, who do business with the farms in their supply chain will be impacted by scope 3."
He said large public companies have resources dedicated to handling SEC compliance, whereas it's more difficult and costly for local and small businesses.
Supporters of the new rule also said the current voluntary disclosure comes with higher a degree of legal risks, and risks with compliance. They said these rules are not about regulating environmental practices, but simply providing information to investors.
"The proposed SEC requirement on greenhouse gas emissions Scope 1, Scope 2 and Scope 3 is intended to give investors understanding of the issuer transition risk," said Law Professor George Georgiev of Emory University who also participated in the hearing.
"These emissions disclosures do not and cannot be reflective of a double materiality approach. They do not seek disclosure of the firm's impact on the environment. Finally, the SEC has sought to design a workable rule by incorporating liability safe harbors, delaying the effectiveness of certain provisions and endorsing the use of estimates," Georgiev added.
The House Committee on Financial Services said the SEC has yet to finalize the proposed rule.
The full hearing can be found here.
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