therefore critical to include''); Natural Resources Defense Council;
NY State Comptroller; and Teachers Insurance and Annuity Association
of America.
---------------------------------------------------------------------------

    Many commenters recommended basing any GHG emissions disclosure
requirement on the GHG Protocol.\418\ Several of these commenters
stated that the GHG Protocol's framework for reporting GHG emissions,
delineated as Scopes 1, 2, and 3 emissions, has become the globally-
accepted standard used by numerous companies for reporting their GHG
emissions.\419\ Commenters also indicated that a mandatory standard for
reporting GHG emissions based on the GHG Protocol would help in
producing consistent, comparable, and reliable climate-related
information for investors.\420\ Some commenters also stated that
mandating GHG emissions pursuant to a standardized approach, such as
the GHG Protocol, would help mitigate instances of greenwashing.\421\
---------------------------------------------------------------------------

    \418\ See, e.g., letters from Apple; bp; Carbon Tracker
Initiative; Consumer Federation of America; ERM CVS; Ethic Inc.;
First Affirmative Financial Network; Regenerative Crisis Response
Committee; MSCI, Inc.; Natural Resources Defense Council; New York
State Society of Certified Public Accountants; Paradice Investment
Management; Stray Dog Capital; and Huw Thomas.
    \419\ See, e.g., letters from ERM CVS; and Natural Resources
Defense Council.
    \420\ See, e.g., letters from BNP Paribas; Natural Resources
Defense Council; and New York State Society of Certified Public
Accountants.
    \421\ See, e.g., letters from BNP Paribas; Center for Law and
Social Policy (June 15, 2021); and Dimensional Fund Advisors. See
also Section IV.C below for further discussion of the practice of
greenwashing.
---------------------------------------------------------------------------

    Some commenters indicated that the Commission should mandate
disclosure of only Scopes 1 and 2 emissions.\422\ Other commenters
suggested limiting the mandatory disclosure of Scope 3 emissions to
registrants in certain industries,\423\ larger registrants, or when a
registrant's Scope 3 emissions comprise 40 percent of its total
emissions.\424\ These commenters pointed to difficulties in obtaining
the necessary data from third parties and methodological uncertainties
as reasons for limiting or not requiring disclosure of Scope 3
emissions. Other commenters and research support a requirement for
disclosure of Scope 3 emissions that is independent of an individual
company's materiality assessment.\425\
---------------------------------------------------------------------------

    \422\ See, e.g., letters from Acadian Asset Management LLC;
American Bankers Association; American Exploration Production
Council (June 11, 2021); Seema Arora; Bank Policy Institute;
Biotechnology Innovation Organization; Business Roundtable (June 11,
2021); Cisco (June 11, 2021); Conning (June 11, 2021); CPP
Investments; Decatur Capital Management; Dimensional Fund Advisors;
Ethic Inc.; Freeport-McMoran (June 11, 2021); Harvard Management
Company; Information Technology Industry Council; Institute of
International Bankers; Investment Adviser Association; Manulife
Investment Management; PGIM; PIMCO; Real Estate Roundtable (June 9,
2021); Matthew Roling and Samantha Tirakian; SIFMA Asset Management
Group; the Vanguard Group, Inc.; and Walmart, Inc.
    \423\ See, e.g., letters from Teachers Insurance and Annuity
Association of America (recommending requiring Scope 3 disclosure
from issuers in the financial, energy, transportation, materials and
buildings, and agriculture, food, and forest products sectors; and
Sens. Schatz and Whitehouse (recommending requiring Scope 3
disclosure for financed emissions).
    \424\ See letter from Catavento Consultancy.
    \425\ See, e.g., letters from Uber Technologies (Apr. 27, 2021);
and Americans for Financial Reform Education Fund. See also TCFD,
Guidance on Metrics, Targets, and Transition Plans (stating that 47%
of respondents surveyed supported disclosure of Scope 3 GHG
emissions independent of a materiality assessment).
---------------------------------------------------------------------------

    A few commenters stated that the Commission should require the
disclosure of only Scope 1 emissions.\426\ One commenter stated that
this approach would be consistent with the Greenhouse Gas Reporting
Program overseen by the EPA, which they stated requires the tracking of
facility-level Scope 1 emissions from ``large greenhouse gas
emitters.'' \427\ Another commenter opposed a requirement to disclose
any GHG emissions, asserting that GHG emissions do not serve as
adequate indicators for the actual risks faced by a registrant.\428\
---------------------------------------------------------------------------

    \426\ See letters from American Petroleum Institute; Virginia
Harper Ho; and David Marriage.
    \427\ See letter from American Petroleum Institute.
    \428\ See letter from Richard Love.
---------------------------------------------------------------------------

    We agree with the many commenters that indicated that GHG emissions
disclosure could provide important information for investors to help
them evaluate the climate-related risks faced by registrants and to
understand better how registrants are planning to mitigate or adapt to
those risks.\429\ The proposed GHG emissions disclosures could be
important to an investor's understanding of other disclosures that
would be required by the proposed rules, such as disclosure of the
likely impacts of climate-related risks as well as any targets and
goals disclosure.\430\
---------------------------------------------------------------------------

    \429\ See supra notes 412 and 413.
    \430\ See supra Section II.C and infra Section II.I.
---------------------------------------------------------------------------

    We propose requiring disclosure of registrants' Scopes 1 and 2
emissions because, as several institutional investor commenters stated,
investors need and many investors currently use this information to
make investment or voting decisions.\431\ One of those commenters
stated that GHG emissions information serves as the starting point for
transition risk analysis because it is quantifiable and comparable
across companies and industries.\432\ The commenter, an institutional
investor, indicated that it uses GHG emissions data to rank companies
within industries based on their GHG emissions intensity to better
assess transition risk exposure of companies in its portfolio and make
informed investment decisions. This commenter also indicated that
Scopes 1 and 2 emissions information is more broadly available than
Scope 3 emissions data because of the challenges of collecting the
latter data.
---------------------------------------------------------------------------

    \431\ See, e.g., letters from PIMCO; State Street Global
Advisors; Trillium Asset Management; and Wellington Management Co.
    \432\ See Wellington Management Co.
---------------------------------------------------------------------------

    As previously mentioned, several large institutional investors and
financial institutions, which collectively have trillions of dollars in
assets under management, have formed initiatives and made commitments
to achieve a net-zero economy by 2050, with interim targets set for
2030.\433\ These initiatives further support the notion that investors
currently need and use GHG emissions data to make informed investment
decisions. These investors and financial institutions are working to
reduce the GHG emissions of companies in their portfolios or of their
counterparties and need GHG emissions data to evaluate the progress
made regarding their net-zero commitments and to assess any

associated potential asset devaluation or loan default risks.\434\ A
company's GHG emissions footprint also may be relevant to investment or
voting decisions because it could impact the company's access to
financing or signal potential changes in its financial planning as
governments, financial institutions, and other investors make demands
to reduce GHG emissions.
---------------------------------------------------------------------------

    \433\ See supra Section I.C.1 (discussing, in particular,
Climate Action 100+ and GFANZ).
    \434\ See, e.g., Climate Action 100+, The Three Asks.
---------------------------------------------------------------------------

    We also agree with commenters that basing the Commission's proposed
GHG emissions disclosure rules on concepts used in the GHG Protocol
could help provide investors with consistent, comparable, and reliable
information about a registrant's GHG emissions.\435\ In this regard, we
note that several studies have found that GHG emissions data prepared
pursuant to the GHG Protocol have become the most commonly referenced
measurements of a company's exposure to climate-related risks.\436\
---------------------------------------------------------------------------

    \435\ See supra note 420.
    \436\ See, e.g., Kauffmann, C., C. T[eacute]bar Less and D.
Teichmann (2012), Corporate Greenhouse Gas Emission Reporting: A
Stocktaking of Government Schemes, OECD Working Papers on
International Investment, 2012/01, OECD Publishing, at 8, available
at http://dx.doi.org/10.1787/5k97g3x674lq-en (``For example, the use
of scope 1, 2, 3 to classify emissions as defined by the GHG
Protocol has become common language and practice today.'').
---------------------------------------------------------------------------

    However, we are not proposing to adopt all of the features of the
GHG Protocol into the Commission's proposed climate-related disclosure
rules. As explained in greater detail below, in one significant respect
the proposed rules differ from the approach taken by the GHG Protocol
regarding the methodology that a registrant would be required to use
when calculating its GHG emissions. This difference better suits the
U.S. financial reporting regime and the needs of investors.\437\ We
recognize that the methodologies pertaining to the measurement of GHG
emissions, particularly Scope 3 emissions, are evolving. While we
expect that many registrants would choose to follow the standards and
guidance provided by the GHG Protocol when calculating their GHG
emissions, the proposed rules would not require registrants to do so.
Allowing for some flexibility in the choice of GHG emissions
methodologies would permit registrants to adapt to new approaches, such
as those pertaining to their specific industry, as they emerge.
---------------------------------------------------------------------------

    \437\ See infra Section II.G.2 (discussing the proposed
treatment for determining ownership or control for the purpose of
setting a registrant's organizational boundaries when measuring its
Scopes 1 and 2 emissions).
---------------------------------------------------------------------------

b. The Treatment of Scopes 1 and 2 Emissions Compared to Scope 3
Emissions
    We are proposing to require all registrants to disclose their
Scopes 1 and 2 emissions. Those types of emissions result directly or
indirectly from facilities owned or activities controlled by a
registrant. The relevant data for calculating Scopes 1 and 2 emissions
should be reasonably available to registrants, and the relevant
methodologies are fairly well-developed. Registrants with large
stationary sources of emissions already report Scope 1 emissions data
to the EPA, and the EPA provides detailed methodologies for a range of
industries with significant Scope 1 emissions.\438\ The EPA also
provides detailed guidance for the calculation of Scope 2 emissions,
which, although classified as ``indirect emissions,'' are generated by
direct activities of the registrant in using purchased energy.\439\
---------------------------------------------------------------------------

    \438\ See EPA, Direct Emissions from Stationary Combustion
Sources (Dec. 2020), available at https://www.epa.gov/sites/default/files/2020-12/documents/stationaryemissions.pdf.
    \439\ See EPA, Indirect Emissions from Purchased Electricity
(Dec. 2020), available at https://www.epa.gov/sites/default/files/2020-12/documents/electricityemissions.pdf.
---------------------------------------------------------------------------

    Unlike Scopes 1 and 2 emissions, Scope 3 emissions typically result
from the activities of third parties in a registrant's value chain
\440\ and thus collecting the appropriate data and calculating these
emissions would potentially be more difficult than for Scopes 1 and 2
emissions. At the same time, in many cases Scope 3 emissions disclosure
may be necessary to present investors a complete picture of the
climate-related risks--particularly transition risks--that a registrant
faces and how GHG emissions from sources in its value chain, which are
not included in its Scopes 1 and 2 emissions, may materially impact a
registrant's business operations and associated financial performance.
Scope 3 emissions can augment the information provided in Scopes 1 and
2 emissions and help to reflect the total emissions associated with a
registrant's operations, including inputs from upstream activities,
such as those of its suppliers, and outputs from downstream activities,
such as those involving the distribution, use, and disposal of a
registrant's products or services.\441\
---------------------------------------------------------------------------

    \440\ As previously mentioned, the proposed rules would define a
registrant's value chain to mean the upstream and downstream
activities related to a registrant's operations. Upstream activities
include activities that relate to the initial stages of producing a
good or service (e.g., materials sourcing, materials processing, and
supplier activities). Downstream activities include activities that
relate to processing materials into a finished product and
delivering it or providing a service to the end user (e.g.,
transportation and distribution, processing of sold products, use of
sold products, end of life treatment of sold products, and
investments). See proposed 17 CFR 229.1500(t).
    \441\ See, e.g., letter from Wellington Management Co.
---------------------------------------------------------------------------

    Scope 3 emissions are indirect, but registrants can and do take
steps to limit Scope 3 emissions and the attendant risks. Although a
registrant may not own or control the operational activities in its
value chain that produce Scope 3 emissions, it nevertheless may
influence those activities, for example, by working with its suppliers
and downstream distributors to take steps to reduce those entities'
Scopes 1 and 2 emissions (and thus help reduce the registrant's Scope 3
emissions) and any attendant risks. As such, a registrant may be able
to mitigate the challenges of collecting the data required for Scope 3
disclosure.\442\ Such data may reveal changes in a registrant's Scope 3
emissions over time that could be informative for investors in
discerning how the registrant is managing transition risks. For
example, a registrant could seek to reduce the potential impacts on its
business of its upstream emissions by choosing to purchase from more
GHG emission-efficient suppliers or by working with existing suppliers
to reduce emissions. A registrant could also seek to reduce the
potential impacts on its business of downstream emissions by producing
products that are more energy efficient or involve less GHG emissions
when consumers use them, or by contracting with distributors that use
shorter transportation routes. Being able to compare Scope 3 emissions
over time could thus be a valuable tool for investors in tracking a
registrant's progress in mitigating transition and other climate-
related risks.
---------------------------------------------------------------------------

    \442\ See, e.g., letter from Apple (referencing its 2021
Environmental Progress Report, available at https://www.apple.com/environment/pdf/Apple_Environmental_Progress_Report_2021.pdf, which
states that 109 suppliers across 24 countries have committed to
manufacturing Apple products with 100 percent renewable energy, and
indicating Apple's development of detailed life cycle assessment
models, which help the company identify its top product component
contributors of carbon emissions and facilitate its providing a
comprehensive account of its relevant Scope 3 emissions).
---------------------------------------------------------------------------

    To balance the importance of Scope 3 emissions with the potential
relative difficulty in data collection and measurement, the proposed
rules would require disclosure of Scope 3 emissions only if those
emissions are material, or if the registrant has set a GHG emissions
reduction target or goal that includes its

Scope 3 emissions.\443\ As explained in greater detail below, this
latter proposed disclosure requirement could assist investors in
tracking the progress of the registrant toward reaching the target or
goal so that investors can better understand potential associated
costs.\444\
---------------------------------------------------------------------------

    \443\ See proposed 17 CFR 229.1504(c)(1). As explained below, we
are also proposing a safe harbor for Scope 3 disclosures. See infra
Section II.G.3.
    \444\ See infra note 461 and accompanying text.
---------------------------------------------------------------------------

    Consistent with the Commission's definition of ``material'' and
Supreme Court precedent, a registrant would be required to disclose its
Scope 3 emissions if there is a substantial likelihood that a
reasonable investor would consider them important when making an
investment or voting decision.\445\ In articulating this materiality
standard, the Supreme Court recognized that ``[d]oubts as to the
critical nature'' of the relevant information ``will be commonplace.''
But ``particularly in view of the prophylactic purpose'' of the
securities laws,'' and ``the fact that the content'' of the disclosure
``is within management's control, it is appropriate that these doubts
be resolved in favor of those the statute is designed to protect,''
namely investors.\446\
---------------------------------------------------------------------------

    \445\ See supra note 209.
    \446\ TSC Industries, Inc. v Northway, 426 U.S. at 448.
---------------------------------------------------------------------------

    When recommending that the Commission require the disclosure of
Scope 3 emissions, some commenters indicated that Scope 3 emissions
represent the relatively large source of overall GHG emissions for many
companies.\447\ Given their relative magnitude, we agree that, for many
registrants, Scope 3 emissions may be material to help investors assess
the registrants' exposure to climate-related risks, particularly
transition risks,\448\ and whether they have developed a strategy to
reduce their carbon footprint in the face of regulatory, policy, and
market constraints.\449\
---------------------------------------------------------------------------

    \447\ See, e.g., letters from Apple; and WK Associates.
    \448\ See, e.g., letter from Wellington Management Co.
    \449\ See Eric Rosenbaum, Climate experts are worried about the
toughest carbon emissions for companies to capture (Aug. 18, 2021)
(``Scope 3 carbon emissions, or those not part of operations or
under direct control, represent the majority of the carbon footprint
for most companies, in some cases as high as 85% to 95%''),
available at https://www.cnbc.com/2021/08/18/apple-amazon-exxon-and-
the-toughest-carbon-emissions-to-
capture.html#:~:text=Scope%203%20carbon%20
emissions%2C%20or,as%2085%25%to%2095%25. See also MSCI, Emissions:
Seeing the Full Picture (Sept. 17, 2020) (``For some companies and
industries, Scope 3 emissions dominate the overall carbon footprint.
For example, the Scope 3 emissions of the integrated oil and gas
industry . . . are more than six times the level of its Scope 1 and
2 emissions.''), available at https://www.msci.com/www/blog-posts/scope-3-carbon-emissions-seeing/02092372761; letter from WK
Associates, Inc. (June 14, 2021) (stating that Scope 3 emissions
account for approximately 70-90% of lifecycle emissions from oil
products and 60-85% of those from natural gas, according to the
International Energy Agency).
---------------------------------------------------------------------------

    Scope 3 emissions information may be material in a number of
situations to help investors gain a more complete picture of the
transition risks to which a registrant may be exposed. In certain
industries, a transition to lower-emission products or processes may
already be underway, triggered by existing laws or regulations, changes
in weather, policy initiatives, a shift in consumer preferences,
technological changes, or other market forces, such that financial
risks are reasonably foreseeable for registrants in those industries
based on the emissions in their value chain. For example, some
registrants may need to allocate capital to invest in lower emissions
equipment. Investors thus need and use information about the full GHG
emissions footprint and intensity of a registrant to determine and
compare how exposed a registrant is to the financial risks associated
with any transition to lower-emission products.
    For example, in the automobile industry, the vast majority of car
manufacturers' GHG emissions footprint comes from tailpipe emissions of
cars driven by customers, as compared to the emissions from
manufacturing the cars.\450\ There is already a transition underway to
reduce tailpipe emissions through the adoption of stricter fuel
efficiency regulations \451\ and by governmental initiatives that
encourage the manufacture and demand for electric vehicles.\452\ Demand
for electric vehicles is increasing in the United States and
globally,\453\ and leading automobile manufacturers have announced
plans to increase the manufacture of electric vehicles, with many
setting commitments to manufacture all-electric fleets or achieve net-
zero emissions.\454\ This transition raises financial risks for
automobile manufacturers, which can be gauged, in part, by their Scope
3 emissions. Investors can use Scope 3 emissions data concerning a car
manufacturer's suppliers and the use of its sold products to assess
whether a particular manufacturer is taking steps to mitigate or adapt
to the risks posed by a transition to lower emission vehicles.
---------------------------------------------------------------------------

    \450\ See, e.g., TCFD, Guidance on Metrics, Targets, and
Transition Plans (Oct. 2021), Appendix 1, Figure A1-1 (Importance of
Scope 3 GHG Emissions in Certain Sectors) (showing that, for the
automobiles and components sector, the majority of GHG emissions
result from downstream product use), available at https://assets.bbhub.io/company/sites/60/2021/07/2021-Metrics_Targets_Guidance-1.pdf.
    \451\ See, e.g., Coral Davenport, E.P.A. Announces Tightest-Ever
Auto Pollution Rules, N.Y. Times, Dec. 20, 2021, available at
https://www.nytimes.com/2021/12/20/climate/tailpipe-rules-climate-biden.html?searchResultPosition=25 (reporting that the EPA announced
strengthened limits on pollution from automobile tailpipes). In
addition, more than a dozen states have adopted low emission vehicle
standards. See California Air Resources Board, States that have
Adopted California's Vehicle Standards under Section 177 of the
Federal Clean Air Act, available at https://ww2.arb.ca.gov/resources/documents/states-have-adopted-californias-vehicle-standards-under-section-177-federal.
    \452\ See, e.g., Catherine Lucey and Andrew Duehren, Biden Touts
Build Back Better in Meeting With CEOs, Wall Street Journal, Jan.
26, 2022, available at https://www.wsj.com/articles/biden-touts-build-back-better-in-meeting-with-ceos-11643227677?mod=Searchresults_pos1&page= (reporting efforts to
obtain Federal tax incentives to promote the use of electric and
hydrogen-power vehicles).
    \453\ See Jack Ewing, Sales of Electric Vehicles Surpass Diesel
in Europe, a First, N.Y. Times, Jan. 17, 2022 (stating that sales of
battery-powered cars soared in Europe, the United States, and China
in 2021), available at https://www.nytimes.com/2022/01/17/business/electric-vehicles-europe.html?searchResultPosition=1.
    \454\ See, e.g., Tom Krisher and Aamer Madhani, US automakers
pledge huge increase in electric vehicles, AP News, Aug. 5, 2021,
available at https://apnews.com/article/technology-joe-biden-business-environment-and-nature-economy-88fe6ca8e333f3d00f6d2e98c6652cea (reporting that General Motors
aspires to sell only electric passenger vehicles by 2035 and Ford
and Stellantis (formerly Fiat Chrysler) each expect that 40% of
global sales to be electric vehicles by 2030); see also https://www.caranddriver.com/news/g35562831/ev-plans-automakers-timeline/;
and Jim Motavalli, Every Automaker's EV Plans Through 2035 And
Beyond, Forbes, Oct. 4, 2021, available at https://www.forbes.com/wheels/news/automaker-ev-plans/.
---------------------------------------------------------------------------

    Changes in requirements by financial institutions and institutional
investors can present similar financial risks for companies. As many
financial institutions and investors begin to set their own GHG
emissions reduction goals, they may consider the total GHG emissions
footprint of companies that they finance or invest in to build
portfolios to meet their goals.\455\ Financial institutions and
investors may focus on Scopes 1 and 2 emissions for companies in some
industries, particularly for industries in which Scopes 1 and 2
represent the majority of companies' total GHG emissions footprint. For
other industries, however, Scope 3 emissions represent a relatively
significant portion of companies' total GHG footprint, and therefore
may reflect a more complete picture of companies' exposure to
transition risks than Scopes 1 and 2 emissions alone. For oil and gas
product manufacturers, for example, Scope 3 emissions are likely to be
material and thus necessary to an

understanding of a registrant's climate-related risks.
---------------------------------------------------------------------------

    \455\ See supra Section I.C.1.
---------------------------------------------------------------------------

    When assessing the materiality of Scope 3 emissions, registrants
should consider whether Scope 3 emissions make up a relatively
significant portion of their overall GHG emissions. While we are not
proposing a quantitative threshold for determining materiality, we note
that some companies rely on, or support reliance on, a quantitative
threshold such as 40 percent when assessing the materiality of Scope 3
emissions.\456\ However, even when Scope 3 emissions do not represent a
relatively significant portion of overall GHG emissions, a quantitative
analysis alone would not suffice for purposes of determining whether
Scope 3 emissions are material. Consistent with the concept of
materiality in the securities laws, this determination would ultimately
need to take into account the total mix of information available to
investors, including an assessment of qualitative factors. Accordingly,
Scope 3 emissions may make up a relatively small portion of a
registrant's overall GHG emissions but still be material where Scope 3
represents a significant risk, is subject to significant regulatory
focus, or ``if there is a substantial likelihood that a reasonable
[investor] would consider it important.'' \457\ Moreover, if a
materiality analysis requires a determination of future impacts, i.e.,
a transition risk yet to be realized, then both the probability of an
event occurring and its magnitude should be considered. Even if the
probability of an adverse consequence is relatively low, if the
magnitude of loss or liability is high, then the information in
question may still be material.
---------------------------------------------------------------------------

    \456\ See, e.g., letter from Uber Technologies; see also TCFD,
Guidance on Metrics, Targets, and Transition Plans, at note 40,
citing SBTi, SBTi Criteria and Recommendations (Oct. 2021),
available at https://sciencebasedtargets.org/resources/files/SBTi-criteria.pdf.
    \457\ TSC Industries v. Northway, 426 U.S. at 449.
---------------------------------------------------------------------------

    If a registrant determines that its Scope 3 emissions are not
material, and therefore not subject to disclosure, it may be useful to
investors to understand the basis for that determination. Further, if a
registrant determines that certain categories of Scope 3 emissions are
material, registrants should consider disclosing why other categories
are not material. If, however, Scope 3 emissions are material, then
understanding the extent of a registrant's exposure to Scope 3
emissions, and the choices it makes regarding them, would be important
for investors when making investment or voting decisions.
    Several commenters stated that disclosure of a registrant's Scope 3
emissions is essential to making an informed investment decision
because Scope 3 emissions can indicate a registrant's exposure to
climate-related transition risks.\458\ For example, if policy changes
lead to mandatory emissions reductions or carbon pricing, a registrant
with high Scope 3 emissions could experience higher costs in sourcing
key inputs. Similarly, if consumer preferences change to favor products
that are less carbon intensive, a registrant could see a significant
change in demand for its products. Registrants that do not account for
these risks, or make suboptimal choices regarding them, could become
less profitable in the future than registrants that acknowledge these
risks and successfully mitigate them.\459\ Thus, Scope 3 emissions
disclosure could help convey to investors the potential financial risks
facing a company related to any transition to a lower carbon economy.
With Scope 3 information disclosed, investors would be able to assess,
in conjunction with reported financial information, how GHG emissions
impact the registrant's operations as well as its overall business
strategy so that they can make more informed investment or voting
decisions.\460\
---------------------------------------------------------------------------

    \458\ See, e.g., letters from Confluence Philanthropy; Forum for
Sustainable and Responsible Investment; Mirova US LLC; NY City
Comptroller; and Wellington Management Co.
    \459\ See id.
    \460\ For example, registrants that choose to mitigate climate-
related risks by undertaking research and development activities to
source inputs involving less GHG emissions might incur expenses in
the short-term but could achieve potential long-term cost savings by
implementing more energy-efficient production processes and avoiding
potential penalties imposed by regulation.
---------------------------------------------------------------------------

    Disclosure of Scope 3 emissions could also highlight instances
where a registrant attempts to reduce its total Scopes 1 and 2
emissions by outsourcing carbon intensive activities. For example, a
registrant could contract out certain high-emissions production
activities so that its own Scope 1 or 2 emissions are lower than a
similar company that has retained direct ownership and control over
more of its production activities. Thus, Scope 3 emissions reporting
could provide greater transparency and help preclude any efforts by
registrants to obscure for investors the full magnitude of the climate-
related risks associated with their GHG emissions.
    The proposed rules would also require a registrant to disclose its
Scope 3 emissions if it has set a GHG emissions reduction target or
goal that includes Scope 3 emissions.\461\ This disclosure requirement
would enable investors to understand the scale and scope of actions the
registrant may need to take to fulfill its commitment to reduce its
Scope 3 emissions and the potential financial impact of that commitment
on the registrant. It would also enable an investor to assess the
registrant's strategy for meeting its Scope 3 emissions target or goal
and its progress towards that target or goal, which may affect the
registrant's business.
---------------------------------------------------------------------------

    \461\ See proposed 17 CFR 229.1504(c)(1).
---------------------------------------------------------------------------

    Scope 3 emissions disclosures would help investors to understand
and assess the registrant's strategy. For example, Scope 3 emissions
disclosures would allow an investor to better understand how feasible
it would be for the registrant to achieve its targets through its
current strategy, to track the registrant's progress over time, and to
understand changes the registrant may make to its strategy, targets, or
goals. Scope 3 emissions disclosures would thus be important to
evaluating the financial effects of the registrant's target or goal. In
addition, this disclosure could help prevent instances of greenwashing
or other misleading claims concerning the potential impact of Scope 3
emissions on a registrant's business because investors, and the market
would have access to a quantifiable, trackable metric.
    A registrant's Scope 3 emissions disclosure, together with the
proposed financial statement metrics, would also enable an investor to
assess the efficiency and efficacy of the registrant's actions to
achieve its target or goal (e.g., by comparing the registrant's
expenditures or other investments in lower carbon transition activities
from year to year with any corresponding reduction in its Scope 3
emissions). If a registrant has a relatively ambitious Scope 3
emissions target, but discloses little investment in transition
activities in its financial statements and little or no reduction in
Scope 3 emissions from year to year, these disclosures could indicate
to investors that the registrant may need to make a large expenditure
or significant change to its business operations as it gets closer to
its target date, or risk missing its target. Both potential outcomes
could have financial ramifications for the registrant and, accordingly,
investors.
    The proposed disclosure requirement should also give investors the
ability to evaluate whether a registrant's target or goal and its plan
for achieving that target or goal could have an adverse impact on the
registrant. For example, an investor might conclude that the financial
costs of a registrant's plan would outweigh any benefits to the

business, and factor that into how the registrant's securities fit into
the investor's own investment portfolio given the investor's risk
tolerance and other investment goals. Thus, the objective of this
disclosure is not to drive targets, goals, plans, or conduct, but to
provide investors with the tools to assess the implications of any
targets, goals, or plans on the registrant in making investment or
voting decisions.
    This disclosure requirement could also enable investors to better
compare firms. For example, two registrants may have the same total GHG
emissions and have made the same commitments to reduce total GHG
emissions from Scopes 1, 2, and 3 emissions combined. However, if the
registrants have different proportions of emissions from Scope 1 and 2
versus Scope 3, investors might determine that there would be different
costs and effects for these registrants from their disclosed plans to
reduce their overall emissions.
    Scope 3 emissions disclosures could also enable investors to better
compare registrants' plans to achieve their Scope 3 emissions targets
or goals. For example, registrants in the retail industry may have a
relatively large portion of their Scope 3 emissions derived from
customer travel to the registrant's stores and shipping products or
goods to customers or stores. If a registrant in this industry has set
Scope 3 emissions targets or goals, in order to meet those targets or
goals it may choose to relocate its stores to be closer to public
transportation. Another similarly situated registrant may elect to
switch to using electric vehicles for shipping. A third similarly
situated registrant might elect to take neither action, but instead
assume Scope 3 emissions reductions based on customers' change in
behavior. Investors could assess the likelihood of each of these three
registrants meeting their Scope 3 emissions target or goal--as well as
the likely financial and operational impact--which could depend on the
amount and type of their Scope 3 emissions. Investors could also
compare the potential impacts of these plans on the three different
registrants. Without disclosures of the amount and type of Scope 3
emissions, investors would face difficulty assessing the likely impacts
of a target or goal that includes Scope 3 emissions on registrants and
comparing the relative impacts across registrants.
    If required to disclose Scope 3 emissions, a registrant would be
required to identify the categories of upstream and downstream
activities that have been included in the calculation of its Scope 3
emissions. Consistent with the GHG Protocol,\462\ the proposed rules
identify several categories of activities that can give rise to Scope 3
emissions. Upstream activities from which Scope 3 emissions might
result include:
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    \462\ See WBCSD and World Resources Institute, Greenhouse Gas
Protocol Corporate Value Chain (Scope 3) Accounting and Reporting
Standard (Sept. 2011).
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     A registrant's purchased goods and services;
     A registrant's capital goods;
     A registrant's fuel and energy related activities not
included in Scope 1 or Scope 2 emissions;
     Transportation and distribution of purchased goods, raw
materials, and other inputs;
     Waste generated in a registrant's operations;
     Business travel by a registrant's employees;
     Employee commuting by a registrant's employees; and
     A registrant's leased assets related principally to
purchased or acquired goods or services.\463\
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    \463\ See proposed 17 CFR 229.1500(r).
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    Downstream activities from which Scope 3 emissions might result
include:
     Transportation and distribution of a registrant's sold
products, goods or other outputs;
     Processing by a third party of a registrant's sold
products;
     Use by a third party of a registrant's sold products;
     End-of-life treatment by a third party of a registrant's
sold products;
     A registrant's leased assets related principally to the
sale or disposition of goods or services;
     A registrant's franchises; and
     Investments by a registrant.\464\
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    \464\ See id. The ``investments'' category would capture what
are commonly referred to as ``financed emissions.''
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    The list of upstream and downstream activities set forth in
proposed Item 1500(r) is non-exclusive. If any upstream or downstream
activities were significant to the registrant when calculating its
Scope 3 emissions, the proposed rules would require it to identify such
categories and separately disclose Scope 3 emissions data for each of
those categories together with a total of all Scope 3 emissions.\465\
For example, an energy company that produces oil and gas products may
find that a significant category of activity resulting in Scope 3
emissions relates to the end use of its sold products. A manufacturer
might find that a significant category of activities resulting in Scope
3 emissions relate to the emissions of its suppliers in the production
of purchased goods or services, the processing of its sold products, or
by the fuel consumed by its third-party transporters and distributors
of those goods and services and of its sold products. In some cases,
the category in which an emissions source belongs may be unclear, or
the source might fit within more than one category. In those cases,
registrants would need to use their best judgment as to the description
of the emissions source and provide sufficient transparency as to the
reasoning and methodology to facilitate investor understanding of the
emissions category and source.
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    \465\ See proposed 17 CFR 229.1504(c)(1).
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    If required to disclose Scope 3 emissions, a registrant would also
be required to describe the data sources used to calculate those
emissions, including the use of any of the following:
     Emissions reported by parties in the registrant's value
chain, and whether such reports were verified by the registrant or a
third party, or unverified;
     Data concerning specific activities,\466\ as reported by
parties in the registrant's value chain; and
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    \466\ Activity data refers to a quantitative measure of a level
of activity that results in GHG emissions. Depending on the
activity, such data could be expressed, for example, as: Liters of
fuel consumed; kilowatt-hours of electricity consumed; kilograms of
material consumed; kilometers of distance traveled; hours of time
operated; square meters of area occupied; kilograms of waste
generated; kilograms of product sold; or quantity of money spent.
See GHG Protocol, Corporate Value Chain (Scope 3) Accounting and
Reporting Standard, Chapter 7.
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     Data derived from economic studies, published databases,
government statistics, industry associations, or other third-party
sources outside of a registrant's value chain, including industry
averages of emissions, activities, or economic data.\467\
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    \467\ See proposed 17 CFR 229.1504(c)(2).
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    This information is intended to assist investors in assessing the
reliability and accuracy of the registrant's Scope 3 emissions
disclosure. For example, an investor might find emissions data related
to the downstream transportation and distribution of a registrant's
sold products more reliable if based on specific distances traveled by
the registrant's transportation and distribution partners and company-
specific emissions factors rather than estimates of distances traveled
based on industry-average data and using national average emission
factors. Although we recognize that a registrant may sometimes need to
use industry- and national-average data when calculating its Scope 3
emissions, information about the data sources for its Scope 3 emissions
would help

investors better understand the risk exposure posed by the registrant's
value chain in comparison with other registrants and make more informed
investment decisions.
    We acknowledge that a registrant's material Scope 3 emissions is a
relatively new type of metric, based largely on third-party data, that
we have not previously required. We are proposing the disclosure of
this metric because we believe capital markets have begun to assign
financial value to this type of metric, such that it can be material
information for investors about financial risks facing a company. Scope
3 emissions disclosure is an integral part of both the TCFD \468\
framework and the GHG Protocol,\469\ which are widely accepted. It also
has been widely recognized that, for some companies, disclosure of just
Scopes 1 and 2 emissions could convey an incomplete, and potentially
misleading, picture.\470\ We have attempted to calibrate our proposal
to balance investors' demand for this information with the current
limitations of the Scope 3 emissions data.
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    \468\ See, e.g., TCFD, Guidance on Metrics, Targets, and
Transition Plans (Oct. 2021), Appendix 1.
    \469\ See, e.g., GHG Protocol, Corporate Value Chain (Scope 3)
Accounting and Reporting Standard.
    \470\ See, e.g., TCFD, Guidance on Metrics, Targets, and
Transition Plans (Oct. 2021), Appendix 1; and letters from Apple; NY
City Comptroller; and Wellington Investment Co.
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    We also recognize, as discussed below, that the reporting of Scope
3 emissions may present more challenges than the reporting of Scopes 1
and 2 emissions. But in light of the fact that a GHG emissions
reporting regime may be incomplete without the reporting of Scope 3
emissions, we are proposing to include them, with an appropriate
transition period and safe harbor, at the outset. Although we have not
proposed to exclude specific upstream or downstream activities from the
scope of the proposed Scope 3 disclosure requirement, we have limited
the proposed disclosure requirement to those value chain emissions that
overall are material. We also have not proposed a bright-line
quantitative threshold for the materiality determination as suggested
by some commenters \471\ because whether Scope 3 emissions are material
would depend on the particular facts and circumstances, making it
difficult to establish a ``one size fits all'' standard.
---------------------------------------------------------------------------

    \471\ See, e.g., letter from Catavento Consultancy (stating that
Scope 3 emissions disclosure should be mandatory for larger
companies and for those in which Scope 3 emissions account for more
than 40% of total emissions).
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Request for Comment
    93. How would investors use GHG emissions disclosures to inform
their investment and voting decisions? How would such disclosures
provide insight into a registrant's financial condition, changes in
financial condition, and results of operations? How would such
disclosures help investors evaluate an issuer's climate risk-related
exposure? Would such disclosures enable investors to better assess
physical risks associated with climate-related events, transition
risks, or both types of risks?
    94. Should we require a registrant to disclose its GHG emissions
both in the aggregate, per scope, and on a disaggregated basis for each
type of greenhouse gas that is included in the Commission's proposed
definition of ``greenhouse gases,'' as proposed? Should we instead
require that a registrant disclose on a disaggregated basis only
certain greenhouse gases, such as methane (CH4) or
hydrofluorocarbons (HFCs), or only those greenhouse gases that are the
most significant to the registrant? Should we require disaggregated
disclosure of one or more constituent greenhouse gases only if a
registrant is obligated to separately report the individual gases
pursuant to another reporting regime, such as the EPA's greenhouse gas
reporting regime or any foreign reporting regime? If so, should we
specify the reporting regime that would trigger this disclosure?
    95. We have proposed defining ``greenhouse gases'' as a list of
specific gases that aligns with the GHG Protocol and the list used by
the EPA and other organizations. Should other gases be included in the
definition? Should we expand the definition to include any other gases
to the extent scientific data establishes a similar impact on climate
change with reasonable certainty? Should we require a different
standard to be met for other greenhouse gases to be included in the
definition?
    96. Should we require a registrant to express its emissions data in
CO2e, as proposed? If not, is there another common unit of
measurement that we should use? Is it important to designate a common
unit of measurement for GHG emissions data, as proposed, or should we
permit registrants to select and disclose their own unit of
measurement?
    97. Should we require a registrant to disclose its total Scope 1
emissions and total Scope 2 emissions separately for its most recently
completed fiscal year, as proposed? Are there other approaches that we
should consider?
    98. Should we require a registrant to disclose its Scope 3
emissions for the fiscal year if material, as proposed? Should we
instead require the disclosure of Scope 3 emissions for all
registrants, regardless of materiality? Should we use a quantitative
threshold, such as a percentage of total GHG emissions (e.g., 25%, 40%,
50%) to require the disclosure of Scope 3 emissions? If so, is there
any data supporting the use of a particular percentage threshold?
Should we require registrants in particular industries, for which Scope
3 emissions are a high percentage of total GHG emissions, to disclose
Scope 3 emissions?
    99. Should we require a registrant that has made a GHG emissions
reduction commitment that includes Scope 3 emissions to disclose its
Scope 3 emissions, as proposed? Should we instead require registrants
that have made any GHG emissions reduction commitments, even if those
commitments do not extend to Scope 3, to disclose their Scope 3
emissions? Should we only require Scope 3 emissions disclosure if a
registrant has made a GHG emissions reduction commitment that includes
Scope 3 emissions?
    100. Should Scope 3 emissions disclosure be voluntary? Should we
require Scope 3 emissions disclosure in stages, e.g., requiring
qualitative disclosure of a registrant's significant categories of
upstream and downstream activities that generate Scope 3 emissions upon
effectiveness of the proposed rules, and requiring quantitative
disclosure of a registrant's Scope 3 emissions at a later date? If so,
when should we require quantitative disclosure of a registrant's Scope
3 emissions?
    101. Should we require a registrant to exclude any use of purchased
or generated offsets when disclosing its Scope 1, Scope 2, and Scope 3
emissions, as proposed? Should we require a registrant to disclose both
a total amount with, and a total amount without, the use of offsets for
each scope of emissions?
    102. Should we require a registrant to disclose its Scope 3
emissions for each separate significant category of upstream and
downstream emissions as well as a total amount of Scope 3 emissions for
the fiscal year, as proposed? Should we only require the disclosure of
the total amount of Scope 3 emissions for the fiscal year? Should we
require the separate disclosure of Scope 3 emissions only for certain
categories of emissions and, if so, for which categories?
    103. Should the proposed rules include a different standard for

requiring identification of the categories of upstream and downstream
emissions, such as if those categories of emissions are significant to
total GHG emissions or total Scope 3 emissions? Are there any other
categories of, or ways to categorize, upstream or downstream emissions
that a registrant should consider as a source of Scope 3 emissions? For
example, should we require a registrant to disclose Scope 3 emissions
only for categories of upstream or downstream activities over which it
has influence or indirect control, or for which it can quantify
emissions with reasonable reliability? Are there any proposed
categories of upstream or downstream emissions that we should exclude
as sources of Scope 3 emissions?
    104. Should we, as proposed, allow a registrant to provide their
own categories of upstream or downstream activities? Are there
additional categories, other than the examples we have identified, that
may be significant to a registrant's Scope 3 emissions and that should
be listed in the proposed rule? Are there any categories that we should
preclude, e.g., because of lack of accepted methodologies or
availability of data? Would it be useful to allow registrants to add
categories that are particularly significant to them or their industry,
such as Scope 3 emissions from land use change, which is not currently
included in the Greenhouse Gas Protocol's Scope 3 categories? Should we
specifically add an upstream emissions disclosure category for land
use?
    105. Should we require the calculation of a registrant's Scope 1,
Scope 2, and/or Scope 3 emissions to be as of its fiscal year end, as
proposed? Should we instead allow a registrant to provide its GHG
emissions disclosures according to a different timeline than the
timeline for its Exchange Act annual report? If so, what should that
timeline be? For example, should we allow a registrant to calculate its
Scope 1, Scope 2, and/or Scope 3 emissions for a 12-month period ending
on the latest practicable date in its fiscal year that is no earlier
than three months or, alternatively, six months prior to the end of its
fiscal year? Would allowing for an earlier calculation date alleviate
burdens on a registrant without compromising the value of the
disclosure? Should we allow such an earlier calculation date only for a
registrant's Scope 3 emissions? Would the fiscal year end calculations
required for a registrant to determine if Scope 3 emissions are
material eliminate the benefits of an earlier calculation date? Should
we instead require a registrant to provide its GHG emissions
disclosures for its most recently completed fiscal year one, two, or
three months after the due date for its Exchange Act annual report in
an amendment to that report?
    106. Should we require a registrant that is required to disclose
its Scope 3 emissions to describe the data sources used to calculate
the Scope 3 emissions, as proposed? Should we require the proposed
description to include the use of: (i) Emissions reported by parties in
the registrant's value chain, and whether such reports were verified or
unverified; (ii) data concerning specific activities, as reported by
parties in the registrant's value chain; and (iii) data derived from
economic studies, published databases, government statistics, industry
associations, or other third-party sources outside of a registrant's
value chain, including industry averages of emissions, activities, or
economic data, as proposed? Are there other sources of data for Scope 3
emissions the use of which we should specifically require to be
disclosed? For purposes of our disclosure requirement, should we
exclude or prohibit the use of any of the proposed specified data
sources when calculating Scope 3 emissions and, if so, which ones?
    107. Should we require a registrant to provide location data for
its disclosed sources of Scope 1, Scope 2, and Scope 3 emissions if
feasible? If so, should the feasibility of providing location data
depend on whether it is known or reasonably available pursuant to the
Commission's existing rules (Securities Act Rule 409 and Exchange Act
Rule 12b-21)? Would requiring location data, to the extent feasible,
assist investors in understanding climate-related risks, and in
particular, likely physical risks, associated with a registrant's
emissions' sources? Would a requirement to disclose such location data
be duplicative of any of the other disclosure requirements that we are
proposing?
    108. If we require a registrant to provide location data for its
GHG emissions, how should that data be presented? Should the emissions
data be grouped by zip code separately for each scope? Should the
disclosure be presented in a cartographic data display, such as what is
commonly known as a ``heat map''? If we require a registrant to provide
location data for its GHG emissions, should we also require additional
disclosure about the source of the emissions?
c. GHG Intensity
    In addition to requiring the disclosure of its GHG emissions in
gross terms, the proposed rules would also require a registrant to
disclose the sum of its Scopes 1 and 2 emissions in terms of GHG
intensity.\472\ If required to disclose Scope 3 emissions, a registrant
would also be required to separately disclose its Scope 3 emissions in
terms of GHG intensity.\473\ GHG intensity disclosure should provide
context to a registrant's emissions in relation to its business scale
(e.g., emissions per economic output). For example, car manufacturer A
may generate more emissions in terms of CO2e than car
manufacturer B; however, when analyzing an intensity metric (emissions
per unit of production), it becomes apparent that car manufacturer A
actually has a lower emission rate per car produced than car
manufacturer B, which indicates a registrant's emission efficiency.
Because emission efficiency can be a potential indicator of the
likelihood of the registrant being impacted by transition risks, such
GHG intensity disclosure could provide decision-useful information to
investors. In addition, the proposed GHG intensity disclosure would
provide a standardized method for presenting such measure of efficiency
across registrants, which should facilitate comparability of the
registrant's emissions efficiency over time.
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    \472\ See proposed 17 CFR 229.1504(d)(1).
    \473\ See proposed 17 CFR 229.1504(d)(2). The proposed safe
harbor for Scope 3 emissions disclosure would apply to this proposed
GHG intensity metric for Scope 3 emissions. See infra Section
II.C.3.
---------------------------------------------------------------------------

    The proposed rules would define ``GHG intensity'' (or ``carbon
intensity'') to mean a ratio that expresses the impact of GHG emissions
per unit of economic value (e.g., metric tons of CO2e per
unit of total revenues, using the registrant's reporting currency) or
per unit of production (e.g., metric tons of CO2e per unit
of product produced).\474\ For purposes of standardizing the disclosure
and facilitating its comparability, we are proposing to require the
disclosure of GHG intensity in terms of metric tons of CO2e
per unit of total revenue and per unit of production for the fiscal
year.\475\ Total revenue is one of the most commonly used and
understood financial metrics when investors analyze a registrant's
financial results and applies to most registrants (depending on the
nature and maturity of the business) and therefore would be a good
common denominator for the

intensity calculation. The selected unit of production should be
relevant to the registrant's industry to facilitate investor comparison
of the GHG intensity of companies within an industry without regard to
registrant size. Investors may find such a comparison to be useful to
making informed investment decisions to the extent that a registrant
within a particular industry that has a lower GHG intensity relative to
its peers that face fewer climate-related risks.
---------------------------------------------------------------------------

    \474\ See proposed 17 CFR 229.1500(i). We derived this proposed
definition from the GHG Protocol. See GHG Protocol, A Corporate
Accounting and Reporting Standard, Chapter 9.
    \475\ See proposed 17 CFR 229.1504(d)(1).
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    If the registrant has no revenue for a fiscal year, it would be
required to calculate its GHG intensity with another financial measure
(e.g., total assets), with an explanation of why the particular measure
was used. Similarly, if the registrant does not have a unit of
production, it would be required to calculate its GHG intensity with
another measure of economic output, depending on the nature of its
business (e.g., data processing capacity, volume of products sold, or
number of occupied rooms) with an explanation of why the particular
measure was used.\476\
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    \476\ See proposed 17 CFR 229.1504(d)(3).
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    A registrant could also voluntarily disclose other additional
measures of GHG intensity, including non-financial measures such as
economic output, provided it includes an explanation of the reasons why
those particular GHG intensity measures were used and why the
registrant believes such measures provide useful information to
investors.\477\ In all cases, the registrant would be required to
disclose the methodology and other information required pursuant to the
proposed GHG emissions metrics instructions.\478\
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    \477\ See proposed 17 CFR 229.1504(d)(4).
    \478\ See proposed 17 CFR 229.1504(e)(1) and infra Section
II.G.2 for the proposed disclosure requirements pertaining to GHG
emissions methodology.
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Request for Comment
    109. Should we require a registrant to disclose the intensity of
its GHG emissions for the fiscal year, with separate calculations for
(i) the sum of Scope 1 and Scope 2 emissions and, if applicable (ii)
its Scope 3 emissions (separately from Scopes 1 and 2), as proposed?
Should we define GHG intensity, as proposed? Is there a different
definition we should use for this purpose?
    110. Should we require the disclosed GHG intensity to be expressed
in terms of metric tons of CO2e per unit of total revenue,
as proposed? Should we require a different financial measure of GHG
intensity and, if so, which measure? For example, should GHG intensity
be expressed in terms of metric tons of CO2e per unit of
total assets?
    111. Should we require the disclosed GHG intensity to be expressed
in terms of metric tons of CO2e per unit of production, as
proposed? Would such a requirement facilitate the comparability of the
disclosure? Should we require a different economic output measure of
GHG intensity and, if so, which measure? For example, should GHG
intensity be expressed in terms of metric tons of CO2e per
number of employees? Should we require the GHG intensity to be
expressed per unit of production relevant to the registrant's business
(rather than its industry)? Is further guidance needed on how to comply
with the proposed requirement? Would requiring GHG intensity to be
expressed in terms of metrics tons of CO2e per unit of
production require disclosure of commercially sensitive or
competitively harmful information?
    112. Should we require a registrant with no revenue or unit of
production for a fiscal year to disclose its GHG intensity based on,
respectively, another financial measure or measure of economic output,
as proposed? Should we require such a registrant to use a particular
financial measure, such as total assets, or a particular measure of
economic output, such as total number of employees? For registrants who
may have minimal revenue, would the proposed calculation result in
intensity disclosure that is confusing or not material? Should
additional guidance be provided with respect to such instances?
    113. Should we permit a registrant to disclose other measures of
GHG intensity, in addition to the required measures, as long as the
registrant explains why it uses the particular measure of GHG intensity
and discloses the corresponding calculation methodology used, as
proposed?
d. GHG Emissions Data for Historical Periods
    The proposed rules would require disclosure to be provided for the
registrant's most recently completed fiscal year and for the historical
fiscal years included in the registrant's consolidated financial
statements in the applicable filing, to the extent such historical GHG
emissions data is reasonably available.\479\ Requiring historical GHG
emissions data, to the extent available, would provide useful
information for investors by enabling investors to track over time the
registrant's exposure to climate-related impacts represented by the
yearly emissions data, and to assess how it is managing the climate-
related risks associated with those impacts. Requiring GHG emissions
disclosure for current and, when reasonably available, historical
periods should enable investors to analyze trends in the impacts of
material climate-related risks and to evaluate the narrative disclosure
provided pursuant to proposed Item 1502.\480\ Historical GHG emissions
data also could be particularly useful when a registrant has announced
a target or goal for reducing GHG emissions by a certain date by
helping investors assess its progress in meeting that target or goal
and the related impacts on the registrant.
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    \479\ See proposed 17 CFR 229.1504(a).
    \480\ See supra Section II.C for a discussion of proposed 17 CFR
229.1502.
---------------------------------------------------------------------------

    Linking the required number of years of historical GHG emissions
data to the historical periods required in the consolidated financial
statements should benefit investors by requiring emissions data that is
consistent with the financial statement metrics in the filing. This
should help investors connect GHG emissions with the financial
performance of a registrant in the same period, including the proposed
financial statement metrics. Moreover, although we are not proposing to
require the GHG emissions data to be included in the registrant's
consolidated financial statements, we nevertheless believe that the GHG
emissions data is relevant to, and would be read in conjunction with,
information included in the consolidated financial statements. Just as
data about a registrant's revenues and expenses on its income statement
reflect its activities in financial terms for a given year, a
registrant's emissions data reflect its carbon footprint activities for
that year. For this reason, we have proposed requiring a registrant to
provide its GHG emissions data for the same number of years as it is
required to provide data on its income statement and cash flow
statement, to the extent such emissions data is reasonably available.
For example, a registrant that is required to include income statements
and cash flow statements at the end of its three most recent fiscal
years would be required to disclose three years of its Scope 1, Scope 2
and, if material to the registrant or if it has set a GHG emissions
target or goal that includes its Scope 3 emissions, its Scope 3
emissions, expressed both in absolute terms and in terms of
intensity.\481\ If the registrant is a SRC,

only two years of Scopes 1 and 2 emissions metrics would be
required.\482\
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    \481\ Alternatively, if a registrant has no revenue, and it
decides to calculate GHG intensity using total assets, we believe it
would be appropriate for that registrant to provide its GHG
intensity for the same number of years as are required on its
balance sheets (i.e., two years if not a SRC).
    \482\ We are proposing to exempt SRCs from Scope 3 disclosures.
See infra Section II.G.3.
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    A registrant, however, would not otherwise be required to provide a
corresponding GHG emissions metric for a fiscal year preceding its
current reporting fiscal year if, for example, it was not required to
and has not previously presented such metric for such fiscal year and
the historical information necessary to calculate or estimate such
metric is not reasonably available to the registrant without
unreasonable effort or expense.\483\
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    \483\ See Securities Act Rule 409 and Exchange Act Rule 12b-21.
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Request for Comment
    114. Should we require GHG emissions disclosure for the
registrant's most recently completed fiscal year and for the
appropriate, corresponding historical fiscal years included in the
registrant's consolidated financial statements in the filing, to the
extent such historical GHG emissions data is reasonably available, as
proposed? Should we instead only require GHG emissions metrics for the
most recently completed fiscal year presented in the relevant filing?
Would requiring historical GHG emissions metrics provide important or
material information to investors, such as information allowing them to
analyze trends?
2. GHG Emissions Methodology and Related Instructions
    The proposed rules would require a registrant to describe the
methodology, significant inputs, and significant assumptions used to
calculate its GHG emissions metrics.\484\ As proposed, the description
of the registrant's methodology must include the registrant's
organizational boundaries, operational boundaries, calculation
approach, and any calculation tools used to calculate the registrant's
GHG emissions.\485\ Organizational boundaries would be defined to mean
the boundaries that determine the operations owned or controlled by a
registrant for the purpose of calculating its GHG emissions.\486\
Operational boundaries would be defined to mean the boundaries that
determine the direct and indirect emissions associated with the
business operations owned or controlled by a registrant.\487\ This
information should help investors understand the scope of a
registrant's operations included in its GHG emissions metrics and how
those metrics were measured. With this information, investors could
more knowledgeably compare a registrant's GHG emissions metrics with
the GHG emissions metrics of other registrants and make more informed
investment decisions.
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    \484\ See proposed 17 CFR 229.1504(e)(1).
    \485\ See id.
    \486\ See proposed 17 CFR 229.1500(m).
    \487\ See proposed 17 CFR 229.1500(l).
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a. The Setting and Disclosure of Organizational Boundaries
    The proposed rules would require a registrant to disclose its Scope
1 emissions and its Scope 2 emissions separately after calculating them
from all sources that are included in the registrant's organizational
and operational boundaries.\488\ An initial step for many registrants
may be to set their organizational boundaries.\489\ Those boundaries
determine the business operations owned or controlled by a registrant
to be included in the calculation of its GHG emissions.\490\ Because
both Scope 1 and Scope 2 emissions relate to the operations owned or
controlled by a registrant, setting a registrant's organizational
boundaries is an important part of determining its Scopes 1 and 2
emissions.
---------------------------------------------------------------------------

    \488\ See proposed 17 CFR 229.1504(b)(1).
    \489\ See GHG Protocol, Corporate Accounting and Reporting
Standard, Chapter 3.
    \490\ See proposed 17 CFR 229.1500(m).
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    Several commenters stated that the GHG Protocol's standards and
guidance would provide an appropriate framework for reporting GHG
emissions if the Commission required disclosure of GHG emissions.\491\
A company following the GHG Protocol would base its organizational
boundaries on either an equity share approach or a control
approach.\492\ Our proposed approach, however, would require a
registrant to set the organizational boundaries for its GHG emissions
disclosure using the same scope of entities, operations, assets, and
other holdings within its business organization as those included in,
and based upon the same set of accounting principles applicable to, its
consolidated financial statements.\493\
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    \491\ See supra note 111.
    \492\ Under the GHG Protocol's equity share approach, a company
accounts for GHG emissions from operations according to its share of
equity in the operation. Under the GHG Protocol's control approach,
a company accounts for 100% of the GHG emissions from operations
over which it has control. A company can choose to define control
either in financial or operational terms. See GHG Protocol,
Corporate Accounting and Reporting Standard, Chapter 3.
    \493\ See proposed 17 CFR 229.1504(e)(2).
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    For similar reasons to those noted above regarding the proposed
time periods required for GHG emissions disclosure, we propose
requiring the scope of consolidation and reporting to be consistent for
financial data and GHG emissions data. This would be accomplished by
applying existing GAAP.\494\ Requiring a consistent approach should
help avoid potential investor confusion about the reporting scope used
in determining a registrant's GHG emissions and the reporting scope
used for the financial statement metrics, which are included in the
financial statements. Applying existing GAAP could help limit the
compliance burden for registrants as they would be able to use familiar
concepts from financial reporting when preparing their required GHG
emissions disclosures. Requiring registrants to follow the scope of
reporting used in their financial statements should also enhance
comparability across registrants when compared with the multiple
options available under the GHG Protocol.
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    \494\ Foreign private issuers that file consolidated financial
statements under IFRS as issued by the IASB would apply IFRS under
the proposed rules as the basis for setting its organizational
boundaries for the purpose of providing the proposed GHG emissions
disclosure.
---------------------------------------------------------------------------

    Thus, as proposed, the scope of reporting for a registrant's GHG
emissions metrics would be consistent with the scope of reporting for
the proposed financial statement metrics and other financial data
included in its consolidated financial statements in order to provide
investors a consistent view of the registrant's business across its
financial and GHG emissions disclosures. For example, a registrant that
prepares its financial statements pursuant to U.S. GAAP would apply
relevant guidance from U.S. GAAP (e.g., FASB ASC Topic 810
Consolidation and FASB ASC Topic 323 Investments--Equity Method and
Joint Ventures) when determining which entities would be subject to
consolidation or which investments qualify for equity method accounting
or proportionate consolidation.\495\ Therefore, under the proposed
rules a registrant would be required to include all of the emissions
from an entity that it consolidates.\496\ For an equity method investee
or an

operation that is proportionally consolidated, the registrant would be
required to include its share of emissions based on its percentage
ownership of such investee or operation.\497\ For a registrant that
applies the equity method to an investee, the percentage of ownership
interest used to record its share of earnings or losses in the investee
must be the same for measuring its share of GHG emissions by the equity
method investee.\498\ The proposed rules would permit a registrant to
exclude emissions from investments that are not consolidated, are not
proportionately consolidated, or that do not qualify for the equity
method of accounting in the registrant's consolidated financial
statements.\499\
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    \495\ Issuers that are permitted to, and do, apply IFRS issued
by the International Accounting Standards Board would apply the
IASB's equivalent standards. See, e.g., IFRS 10 Consolidated
Financial Statements, IFRS 11 Joint Arrangements and International
Accounting Standards (``IAS'') 28 Investments in Associates and
Joint Ventures. See supra note 319, which states that foreign
private issuers that file consolidated financial statements under
home country GAAP and reconcile to U.S. GAAP, would be required to
use U.S. GAAP as the basis for calculating and disclosing the
proposed climate-related financial statement metrics. The same
requirement would apply for the purpose of determining the proposed
GHG emissions metrics.
    \496\ See proposed 17 CFR 229.1504(e)(2).
    \497\ See id.
    \498\ See id.
    \499\ See proposed 17 CFR 229.1504(b)(2).
---------------------------------------------------------------------------

    For example, a registrant might own or control several plants but
have only a minority ownership in another plant over which it has no
control. For the plants that are owned or controlled by the registrant,
all of those plants' direct and indirect emissions should be included
in its Scopes 1 and 2 emissions disclosure (regardless of ownership
percentage that resulted in consolidation for financial statement
purposes).\500\ If the registrant's proportional interest in the latter
plant is reflected in its consolidated financial statements (e.g., the
investment qualifies for the equity method or a proportionate
consolidation approach), when calculating its Scopes 1 and 2 emissions
the registrant should include such proportional share (based on
ownership interest) of that plant's emissions in the total of each of
its Scopes 1 and 2 emissions.\501\
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    \500\ See proposed 17 CFR 229.1500(m) (defining organizational
boundaries as the boundaries that determine the operations owned or
controlled by a registrant) and 17 CFR 229.1504(b)(1) (requiring the
disclosure of Scopes 1 and 2 emissions separately after calculating
them from all sources included in a registrant's organizational and
operational boundaries).
    \501\ See proposed 17 CFR 229.1504(e)(2).
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    A related provision under the proposed rules would require a
registrant to use the same organizational boundaries when calculating
its Scope 1 emissions and Scope 2 emissions \502\ since both sets of
emissions relate to operations that a registrant owns or controls. If
required to disclose its Scope 3 emissions, a registrant would also be
required to apply the same organizational boundaries used when
determining its Scopes 1 and 2 emissions as an initial step in
identifying the sources of indirect emissions from activities in its
value chain over which it lacks ownership and control and which must be
included in the calculation of its Scope 3 emissions.\503\ Requiring a
registrant to use the same organizational boundaries when calculating
its Scopes 1, 2 and 3 emissions should help limit investor confusion
over those operations or activities over which it has ownership or
control (sources of its Scopes 1 and 2 emissions) and those activities
in its value chain over which it lacks ownership or control (sources of
its Scope 3 emissions). The proposed provision also would provide that,
once a registrant has determined its organizational (and operational)
boundaries, it must consistently use those boundaries when calculating
its GHG emissions.\504\ This proposed provision should help investors
track and compare a registrant's GHG emissions over time.
---------------------------------------------------------------------------

    \502\ See proposed 17 CFR 229.1504(e)(3).
    \503\ See id.
    \504\ See id.
---------------------------------------------------------------------------

b. The Setting and Disclosure of Operational Boundaries
    When describing the methodology, significant inputs, and
significant assumptions used to calculate its GHG emissions metrics, a
registrant is required to describe its operational boundaries.\505\
This would involve identifying emissions sources within its plants,
offices, and other operational facilities that fall within its
organizational boundaries, and then categorizing the emissions as
either direct or indirect emissions. For example, a registrant might
have direct emissions from one or more of the following sources that it
owns or controls:
---------------------------------------------------------------------------

    \505\ See proposed Item 1504(e)(1).
---------------------------------------------------------------------------

     Stationary equipment (from the combustion of fuels in
boilers, furnaces, burners, turbines, heaters, and incinerators);
     Transportation (from the combustion of fuels in
automobiles, trucks, buses, trains, airplanes, boats, ships, and other
vessels);
     Manufacturing processes (from physical or chemical
processes, such as CO2 from the calcination process in
cement manufacturing or from catalytic cracking in petrochemical
processing, and PFC emissions from aluminum smelting); and
     Fugitive emission sources (equipment leaks from joints,
seals, packing, gaskets, coal piles, wastewater treatment, pits,
cooling towers, and gas processing facilities, and other unintentional
releases).\506\
---------------------------------------------------------------------------

    \506\ This non-exclusive list of possible emissions sources is
based on categories of emissions sources provided in the GHG
Protocol. See GHG Protocol, Corporate Accounting and Reporting
Standard, Chapter 6.
---------------------------------------------------------------------------

    Most registrants would likely have emission sources from stationary
equipment and transportation devices. Registrants in certain industrial
sectors, such as cement, aluminum, and other manufacturers, or oil and
gas production and refining, are likely also to produce emissions from
physical or chemical processes. Some registrants would likely have
emissions from all four types of sources, particularly if they have
their own power generation or waste treatment facilities.\507\
---------------------------------------------------------------------------

    \507\ See id.
---------------------------------------------------------------------------

    The proposed rules would require a registrant to include its
approach to categorizing its emissions and emissions sources when
describing its methodology to determine its operational
boundaries.\508\ A registrant could use the above non-exclusive list of
emissions sources or other categories of emissions sources as long as
it describes how it determined the emissions to include as direct
emissions, for the purpose of calculating its Scope 1 emissions, and
indirect emissions, for the purpose of calculating its Scope 2
emissions.\509\ For most registrants, purchased electricity would
likely constitute a large percentage of their Scope 2 emissions.
Although Scope 2 emissions are generated from a source external to a
registrant, the electricity (or steam, heat, or cooling) is consumed by
the registrant's operations that it owns or controls.
---------------------------------------------------------------------------

    \508\ See proposed 17 CFR 229.1504(e)(1).
    \509\ See id.
---------------------------------------------------------------------------

c. The Selection and Disclosure of a GHG Emissions Calculation
Approach, Including Emission Factors
    In addition to setting its organizational and operational
boundaries, a registrant would need to select a GHG emissions
calculation approach. While the direct measurement of GHG emissions
from a source by monitoring concentration and flow rate is likely to
yield the most accurate calculations, due to the expense of the direct
monitoring of emissions, an acceptable and common method for
calculating emissions involves the application of published emission
factors to the total amount of purchased fuel consumed by a particular
source.\510\ The proposed rules would define ``emission factor'' as a
multiplication factor allowing actual GHG emissions to be calculated
from available activity data or, if no activity data is available,
economic data, to

derive absolute GHG emissions.\511\ Emission factors are ratios that
typically relate GHG emissions to a proxy measure of activity at an
emissions source. Examples of activity data reflected in emission
factors include kilowatt-hours of electricity used, quantity of fuel
used, output of a process, hours of operation of equipment, distance
travelled, and floor area of a building.\512\ If no activity data is
available, a registrant may use an emission factor based on economic
data.\513\ For example, when calculating Scope 3 emissions from
purchased goods or services, a registrant could determine the economic
value of the goods or services purchased and multiply it by an industry
average emission factor (expressed as average emissions per monetary
value of goods or services).\514\
---------------------------------------------------------------------------

    \510\ See, e.g., GHG Protocol, Corporate Accounting and
Reporting Standard, Chapter 6.
    \511\ See proposed 17 CFR 229.1500(e).
    \512\ See id.
    \513\ See id.
    \514\ See, e.g., Greenhouse Gas Protocol, Corporate Value Chain
(Scope 3) Accounting and Reporting Standard, Supplement to the GHG
Protocol Corporate Accounting and Reporting Standard, Chapter 1
(describing the ``spend-based method'' for calculating emissions
from purchased goods or services).
---------------------------------------------------------------------------

    The EPA has published a set of emission factors based on the
particular type of source (e.g., stationary combustion, mobile
combustion, refrigerants, and electrical grid, among others) and type
of fuel consumed (e.g., natural gas, coal or coke, crude oil, and
kerosene, among many others).\515\ The GHG Protocol's own set of GHG
emission calculation tools are based in part on the EPA's emission
factors.\516\ Whatever set of emission factors a registrant chooses to
use, it must identify the emission factors and its source.\517\
---------------------------------------------------------------------------

    \515\ See EPA, Emission Factors for Greenhouse Gas Inventories
(Apr. 2021), available at https://www.epa.gov/sites/default/files/2021-04/documents/emission-factors_apr2021.pdf.
    \516\ See, e.g., The Greenhouse Gas Protocol, GHG Emission
Calculation Tool (Mar. 2021), available at https://ghgprotocol.org/calculation-tools.
    \517\ See proposed 17 CFR 229.1504(e)(1).
---------------------------------------------------------------------------

    After a registrant has selected a calculation approach (i.e.,
direct measurement or application of emissions factors), the registrant
would determine what data must be collected and how to conduct the
relevant calculations, including whether to use any publicly-available
calculation tools. In this regard, we note that there are a number of
publicly-available calculation tools a registrant may elect to utilize
in determining its GHG emissions.\518\ Finally, a registrant would
gather and report GHG emissions up to the corporate level.
---------------------------------------------------------------------------

    \518\ See, e.g., GHG Protocol, Corporate Accounting and
Reporting Standard, Chapter 6 (providing an overview of calculation
tools by type of source (e.g., for stationary combustion, mobile
combustion, and air conditioning and refrigeration use) and by
sector (e.g., for aluminum production, iron and steel production,
cement manufacturing, and pulp and paper production), which are
available on the GHG Protocol website at https://ghgprotocol.org/.
The EPA also has published a Simplified GHG Emissions Calculator
that is designed as a simplified calculation tool to help small
businesses and low emitter organizations estimate and inventory
their annual GHG emissions. See EPA, Simplified GHG Emissions
Calculator (2021), available at https://www.epa.gov/climateleadership/simplified-ghg-emissions-calculator.
---------------------------------------------------------------------------

    For example, when determining its Scope 1 emissions for a
particular plant, a registrant might add up the amount of natural gas
consumed by furnaces and other stationary equipment during its most
recently completed fiscal year and then apply the CO2
emission factor for natural gas to that total amount to derive the
amount of GHG emissions expressed in CO2e. The registrant
would repeat this process for each type of fuel consumed and for each
type of source. If a registrant owns a fleet of trucks, it might total
the amount of diesel fuel or other type of gasoline consumed for the
fiscal year and apply the appropriate CO2 emission factor
for that vehicle and type of fuel. A registrant that uses refrigerants
also might apply the appropriate emission factor for the particular
type of refrigerant to the total amount of that refrigerant used during
the fiscal year. As part of the roll-up process for a registrant with
multiple entities and emission sources, once it has determined the
amount of CO2e for each type of direct emissions source and
for each facility within its organizational and operational boundaries,
the registrant would then add them together to derive the total amount
of Scope 1 emissions for the fiscal year.\519\
---------------------------------------------------------------------------

    \519\ As noted earlier, a registrant that is required to report
its direct emissions to the EPA may be able to use the EPA-provided
data, together with data for any direct emissions not reported to
the EPA, to help fulfill the Commission's proposed Scope 1 emission
disclosure requirement.
---------------------------------------------------------------------------

    A registrant would undergo a similar process when calculating its
Scope 2 emissions for its most recently completed fiscal year. There
are two common methods for calculating Scope 2 emissions for purchased
electricity: The market-based method and the location-based
method.\520\ Pursuant to the market-based method, a registrant would
calculate its Scope 2 emissions based on emission factors and other
data provided by the generator of electricity from which the registrant
has contracted to purchase the electricity and which are included in
the contractual instruments. Pursuant to the location-based method, a
registrant would calculate its Scope 2 emissions based on average
energy generation emission factors for grids located in defined
geographic locations, including local, subnational, or national
boundaries.\521\ A registrant could use either of these methods, both
methods, a combination, or another method as long as it identifies the
method used and its source.\522\ For example, if using the location-
based method, the registrant would apply an appropriate emission factor
for the electricity grid in its region to the total amount of
electricity purchased from that grid during its fiscal year.\523\ The
registrant would then calculate the amount of CO2e from
purchased steam/heat, if any, by applying the appropriate emission
factor for that type of energy source to the total amount
consumed.\524\ The registrant would report the sum of its
CO2e from purchased electricity and steam/heat as its total
Scope 2 emissions for the fiscal year.
---------------------------------------------------------------------------

    \520\ See World Resources Institute, GHG Protocol Scope 2
Guidance (2015), Chapter 4, available at https://ghgprotocol.org/sites/default/files/standards/Scope%202%20Guidance_Final_Sept26.pdf.
    \521\ See id.
    \522\ We note that, pursuant to the GHG Protocol, and as
referenced by the EPA, a company that determines its Scope 2
emissions using a market-based approach would also calculate those
emissions using the location-based method to provide a more complete
picture of the company's Scope 2 emissions. See World Resources
Institute, GHG Protocol Scope 2 Guidance, Chapter 7; and EPA Center
for Corporate Climate Leadership, Scope 1 and Scope 2 Inventory
Guidance.
    \523\ See, e.g., EPA, Emission Factors for Greenhouse Gas
Inventories, Table 6, which provides emission factors for regional
electrical grids.
    \524\ See, e.g., EPA, Emission Factors for Greenhouse Gas
Inventories, Table 7, which provides emission factors for steam and
heat.
---------------------------------------------------------------------------

    As noted above, in all instances a registrant would be required to
describe its methodology, including its organizational and operational
boundaries, calculation approach (including any emission factors used
and the source of the emission factors), and any calculation tools used
to calculate the GHG emissions.\525\ Requiring a registrant to describe
its methodology for determining its GHG emissions should provide
investors with important information to assist them in evaluating the
registrant's GHG emissions disclosure as part of its overall business
and financial disclosure. Such disclosure should enable investors to
evaluate the reasonableness and accuracy of the emission disclosures,
and should promote consistency and comparability over time. For
example, an investor

would be able to evaluate both if the registrant's selection of an
emission factor is reasonable given the registrant's industry sector
and whether changes in reported emissions reflect changes in actual
emissions in accordance with its strategy or simply a change in
calculation methodology.
---------------------------------------------------------------------------

    \525\ See proposed 17 CFR 229.1504(e)(1).
---------------------------------------------------------------------------

    Like registrants in other sectors, registrants in the financial
sector would be required to disclose their Scope 3 emissions if those
emissions are material and to describe the methodology used to
calculate those emissions. A financial registrant's Scope 3 emissions
disclosures would likely include the emissions from companies that the
registrant provides debt or equity financing to (``financed
emissions''). While financial registrants may use any appropriate
methodology to calculate its Scope 3 emissions, the Partnership for
Carbon Accounting Financials' Global GHG Accounting & Reporting
Standard (the ``PCAF Standard'') provides one methodology that
complements the GHG Protocol and assists financial institutions in
calculating their financed emissions.\526\ The PCAF Standard was
developed to work with the calculation of Scope 3 emissions for the
``investment'' category of downstream emissions and was endorsed by the
drafters of the GHG Protocol.\527\ The PCAF Standard covers six asset
classes: Listed equity and corporate bonds; business loans and unlisted
equity; project finance; commercial real estate; mortgages; and motor
vehicle loans.\528\
---------------------------------------------------------------------------

    \526\ See PCAF, Global GHG Accounting & Reporting Standard for
the Financial Industry (2020), available at https://carbonaccountingfinancials.com/files/downloads/PCAF-Global-GHG-Standard.pdf.
    \527\ See id. See also GHG Protocol Press Release, New Standard
Developed to Help Financial Industry Measure and Report Emissions
(Mar. 2021), available at https://ghgprotocol.org/blog/new-standard-developed-help-financial-industry-measure-and-report-emissions.
    \528\ While the guidance provided by the PCAF Standard for each
asset class differs in certain respects, the PCAF Standard applies a
common set of principles across the various asset classes. A key
principle is that the GHG emissions from a client's activities
financed by loans or investments attributable to the reporting
financial institution should be allocated to that institution based
on its proportional share of lending or investment in the borrower
or investee through the application of an ``attribution factor.''
See PCAF, Global GHG Accounting & Reporting Standard for the
Financial Industry (2020), Sections 4.2 and 5.
---------------------------------------------------------------------------

    At this time, we are not proposing to require a particular
methodology for the financial sector in order to provide a financial
sector registrant the flexibility to choose the methodology that best
suits its particular portfolio and financing activities. We believe the
proposed requirement to disclose the methodology used (e.g., the PCAF
Standard or another standard) would provide sufficient information to
an investor.
d. Additional Rules Related to Methodology Disclosure
    We are proposing additional rules related to the methodology for
calculating GHG emissions. Some of these rules would apply generally to
the determination of GHG emissions while some would apply specifically
to the calculation of Scope 3 emissions. For example, one proposed rule
would provide that a registrant may use reasonable estimates when
disclosing its GHG emissions as long as it also describes the
assumptions underlying, and its reasons for using, the estimates.\529\
While we encourage registrants to provide as accurate a measurement of
its GHG emissions as is reasonably possible, we recognize that, in many
instances, direct measurement of GHG emissions at the source, which
would provide the most accurate measurement, may not be possible.
---------------------------------------------------------------------------

    \529\ See proposed 17 CFR 229.1504(e)(4).
---------------------------------------------------------------------------

    Several commenters indicated that a registrant may find it
difficult to complete its GHG emissions calculations for its most
recently completed fiscal year in time to meet its disclosure
obligations for that year's Exchange Act annual report.\530\ The
proposed rules would permit a registrant to use a reasonable estimate
of its GHG emissions for its fourth fiscal quarter if no actual
reported data is reasonably available, together with actual, determined
GHG emissions data for its first three fiscal quarters when disclosing
its GHG emissions for its most recently completed fiscal year, as long
as the registrant promptly discloses in a subsequent filing any
material difference between the estimate used and the actual,
determined GHG emissions data for the fourth fiscal quarter.\531\ We
believe that this proposed provision would help address the concerns of
commenters about the timely completion of both the work required to
disclose a registrant's GHG emissions as of its fiscal year-end and to
meet its other Exchange Act annual reporting obligations.\532\
---------------------------------------------------------------------------

    \530\ See, e.g., letters from Cisco; Dow; Energy Infrastructure
Council; National Mining Association; Newmont Corporation; and
United Airlines Holdings, Inc.
    \531\ See proposed 17 CFR 229.1504(e)(4)(i). One commenter made
a similar recommendation when stating that a registrant should be
required to follow the same timeline for disclosure of its GHG
emissions as for its Exchange Act annual reporting obligations. See
letter from Pricewaterhouse Coopers.
    \532\ See supra note 530.
---------------------------------------------------------------------------

    Another proposed provision would require a registrant to disclose,
to the extent material and as applicable, any use of third-party data
when calculating its GHG emissions, regardless of the particular scope
of emissions.\533\ While this proposed provision would be most relevant
to the disclosure of Scope 3 emissions, where the use of third-party
data is common, it would apply in other instances when third-party data
is material to the GHG emissions determination, such as when
determining Scope 2 emissions using contractual, supplier-provided
emission factors for purchased electricity. When disclosing the use of
third-party data, a registrant would be required to identify the source
of the data and the process the registrant undertook to obtain and
assess such data.\534\ This information would help investors better
understand the basis for, and assess the reasonableness of, the GHG
emissions determinations and, accordingly, evaluate the GHG disclosures
as part of a registrant's business and financial information.
---------------------------------------------------------------------------

    \533\ See proposed 17 CFR 229.1504(e)(5).
    \534\ See id.
---------------------------------------------------------------------------

    One proposed provision would require a registrant to disclose any
material change to the methodology or assumptions underlying its GHG
emissions disclosure from the previous fiscal year.\535\ For example,
if a registrant uses a different set of emission factors, or develops a
more direct method of measuring GHG emissions, which results in a
material change to the GHG emissions produced from the previous year
under (or assuming) the same organizational and operational boundaries,
it would be required to report that change. This should help investors
more knowledgeably compare the emissions data from year to year and
better understand the nature and significance of a material change in
emissions (i.e., was the change primarily due to an implementation of
strategy or a change in methodology).
---------------------------------------------------------------------------

    \535\ See proposed 17 CFR 229.1504(e)(6).
---------------------------------------------------------------------------

    Another proposed provision would require a registrant to disclose,
to the extent material and as applicable, any gaps in the data required
to calculate its GHG emissions.\536\ This proposed provision would be
particularly relevant to a registrant's Scope 3 emissions. While a
registrant's GHG emissions disclosure should provide investors with a
reasonably complete understanding of the registrant's GHG emissions in
each scope of emissions, as previously noted, we recognize that a

registrant may encounter data gaps, particularly when calculating its
Scope 3 emissions. The proposed provision would require the registrant
to disclose the data gaps and discuss whether it used proxy data or
another method to address such gaps. A registrant would also be
required to discuss how its accounting for any data gaps has affected
the accuracy or completeness of its GHG emissions disclosure.\537\ This
information should help investors understand certain underlying
uncertainties and limitations, and evaluate the corresponding
reliability, of a registrant's GHG emissions disclosure, particularly
for its Scope 3 emissions, as part of their assessment of the
registrant's business and financial information.
---------------------------------------------------------------------------

    \536\ See proposed 17 CFR 229.1504(e)(7).
    \537\ See id.
---------------------------------------------------------------------------

    One proposed provision would provide that, when determining whether
its Scope 3 emissions are material, and when disclosing those
emissions, in addition to emissions from activities in its value chain,
a registrant must include GHG emissions from outsourced activities that
it previously conducted as part of its own operations, as reflected in
the financial statements for the periods covered in the filing.\538\
This proposed approach, which is consistent with the GHG Protocol,\539\
would help ensure that investors receive a complete picture of a
registrant's carbon footprint by precluding the registrant from
excluding emissions from activities that are typically conducted as
part of operations over which it has ownership or control but that are
outsourced in order to reduce its Scopes 1 or 2 emissions.
---------------------------------------------------------------------------

    \538\ See proposed 17 CFR 229.1504(e)(8).
    \539\ See Greenhouse Gas Protocol, Corporate Value Chain (Scope
3) Accounting and Reporting Standard, Supplement to the GHG Protocol
Corporate Accounting and Reporting Standard, Chapter 6.
---------------------------------------------------------------------------

    Another proposed provision would provide that, if a registrant is
required to disclose Scope 3 emissions, and if there was any
significant overlap in the categories of activities producing the Scope
3 emissions, the registrant must describe the overlap, how it accounted
for the overlap, and its disclosed total Scope 3 emissions.\540\ For
example, a mining registrant may mine and process iron ore for
conversion into steel products. Because the processing of iron ore and
steelmaking both require the use of coal, GHG emissions would arise
both from the downstream activities involving the processing of sold
products and the use of sold products (i.e., the use of iron ore in the
production of steel). If the registrant has allocated GHG emissions to
both categories (i.e., processing of sold products and use of sold
products), it would be required to describe the overlap in emissions
between the two categories of downstream activities, how it accounted
for the overlap, and the effect on its disclosed total Scope 3
emissions. For example, if the total reported Scope 3 emissions
involved some double-counting because of the overlap, a registrant
would be required to report this effect. This information could help
investors better understand the true extent of a registrant's disclosed
Scope 3 emissions and, thus, the climate-related risks faced by the
registrant.
---------------------------------------------------------------------------

    \540\ See proposed 17 CFR 229.1504(e)(9).
---------------------------------------------------------------------------

    Finally, a proposed provision would provide that a registrant may
present its estimated Scope 3 emissions in terms of a range as long as
it discloses its reasons for using the range and the underlying
assumptions.\541\ This proposed provision reflects our understanding
that, because a registrant may encounter more difficulties obtaining
all of the data required for determining its Scope 3 emissions compared
to determining its Scopes 1 and 2 emissions, presenting its Scope 3
emissions in terms of a range may be a reasonable means of estimating
these emissions when faced with such gaps in the data.
---------------------------------------------------------------------------

    \541\ See proposed 17 CFR 229.1504(e)(4)(ii).
---------------------------------------------------------------------------

Request for Comment
    115. Should we require a registrant to disclose the methodology,
significant inputs, and significant assumptions used to calculate its
GHG emissions metrics, as proposed? Should we require a registrant to
use a particular methodology for determining its GHG emission metrics?
If so, should the required methodology be pursuant to the GHG
Protocol's Corporate Accounting and Reporting Standard and related
standards and guidance? Is there another methodology that we should
require a registrant to follow when determining its GHG emissions?
Should we base our climate disclosure rules on certain concepts
developed by the GHG Protocol without requiring a registrant to follow
the GHG Protocol in all respects, as proposed? Would this provide
flexibility for registrants to choose certain methods and approaches in
connection with GHG emissions determination that meet the particular
circumstances of their industry or business or that emerge along with
developments in GHG emissions methodology as long as they are
transparent about the methods and underlying assumptions used? Are
there adjustments that should be made to the proposed methodology
disclosure requirements that would provide flexibility for registrants
while providing sufficient comparability for investors?
    116. Should we require a registrant to disclose the organizational
boundaries used to calculate its GHG emissions, as proposed? Should we
require a registrant to determine its organizational boundaries using
the same scope of entities, operations, assets, and other holdings
within its business organization as that used in its consolidated
financial statements, as proposed? Would prescribing this method of
determining organizational boundaries avoid potential investor
confusion about the reporting scope used in determining a registrant's
GHG emissions and the reporting scope used for the financial statement
metrics, which are included in the financial statements? Would
prescribing this method of determining organizational boundaries result
in more robust guidance for registrants and enhanced comparability for
investors? If, as proposed, the organizational boundaries must be
consistent with the scope of the registrant's consolidated financial
statements, would requiring separate disclosure of the organizational
boundaries be redundant or otherwise unnecessary?
    117. Except for calculating Scope 3 emissions, the proposed rules
would not require a registrant to disclose the emissions from
investments that are not consolidated, proportionately consolidated, or
that do not qualify for the equity method of accounting. Should we
require such disclosures for Scopes 1 and 2 emissions, and if so, how?
    118. Could situations arise where it is impracticable for a
registrant to align the scope of its organizational boundaries for GHG
emission data with the scope of the consolidation for the rest of its
financial statements? If so, should we allow a registrant to take a
different approach to determining the organizational boundaries of its
GHG emissions and provide related disclosure, including an estimation
of the resulting difference in emissions disclosure (in addition to
disclosure about methodology and other matters that would be required
by the proposed GHG emissions disclosure rules)?
    119. Alternatively, should we require registrants to use the
organizational boundary approaches recommended by the GHG Protocol
(e.g., financial control, operational control, or equity share)? Do
those approaches provide a clear enough framework for complying with
the proposed rules? Would such an

approach cause confusion when analyzing information in the context of
the consolidated financial statements or diminish comparability? If we
permit a registrant to choose one of the three organizational boundary
approaches recommended by the GHG Protocol, should we require a
reconciliation with the scope of the rest of the registrant's financial
reporting to make the disclosure more comparable?
    120. Should we require a registrant to disclose its operational
boundaries, as proposed? Should we require a registrant to discuss its
approach towards the categorization of emissions (e.g., as direct or
indirect emissions) and emissions sources (e.g., stationary or mobile)
when describing its operational boundaries, as proposed?
    121. The proposed operational boundaries disclosure is based
largely on concepts developed by the GHG Protocol. Would requiring a
registrant to determine its organizational boundaries pursuant to the
GAAP applicable to the financial statement metrics included in the
financial statements but its operational boundaries largely pursuant to
concepts developed by the GHG Protocol cause confusion? Should we
require a registrant to apply the GAAP applicable to its financial
statements when determining whether it ``controls'' a particular source
pursuant to the definition of Scope 1 emissions, or particular
operations pursuant to the definition of Scope 2 emissions, as
proposed? If not, how should ``control'' be determined and would
applying a definition of control that differs from applicable GAAP
result in confusion for investors?
    122. Should we require a registrant to use the same organizational
boundaries when calculating its Scopes 1 and 2 emissions, as proposed?
Are there any circumstances when a registrant's organizational
boundaries for determining its Scope 2 emissions should differ from
those required for determining its Scope 1 emissions? Should we also
require a registrant to apply the same organizational boundaries used
when determining its Scopes 1 and 2 emissions as an initial step in
identifying the sources of indirect emissions from activities in its
value chain over which it lacks ownership and control and which must be
included in the calculation of its Scope 3 emissions, as proposed? Are
there any circumstances where using a different organizational boundary
for purposes of Scope 3 emissions disclosure would be appropriate?
    123. Should we require a registrant to be consistent in its use of
its organizational and operational boundaries once it has set those
boundaries, as proposed? Would the proposed requirement help investors
to track and compare the registrant's GHG emissions over time?
    124. Should we require a registrant to disclose the methodology for
calculating the GHG emissions, including any emission factors used and
the source of the emission factors, as proposed? Should we require a
registrant to use a particular set of emission factors, such as those
provided by the EPA or the GHG Protocol?
    125. Should we permit a registrant to use reasonable estimates when
disclosing its GHG emissions as long as it also describes the
assumptions underlying, and its reasons for using, the estimates, as
proposed? Should we permit the use of estimates for only certain GHG
emissions, such as Scope 3 emissions? Should we permit a registrant to
use a reasonable estimate of its GHG emissions for its fourth fiscal
quarter if no actual reported data is reasonably available, together
with actual, determined GHG emissions data for its first three fiscal
quarters when disclosing its GHG emissions for its most recently
completed fiscal year, as long as the registrant promptly discloses in
a subsequent filing any material difference between the estimate used
and the actual, determined GHG emissions data for the fourth fiscal
quarter, as proposed? If so, should we require a registrant to report
any such material difference in its next Form 10-Q if domestic, or in a
Form 6-K, if a foreign private issuer? Should we permit a domestic
registrant to report any such material difference in a Form 8-K if such
form is filed (rather than furnished) with the Commission? Should any
such reasonable estimate be subject to conditions to help ensure
accuracy and comparability? If so, what conditions should apply?
    126. Should we require a registrant to disclose, to the extent
material, any use of third-party data when calculating its GHG
emissions, regardless of the particular scope of emissions, as
proposed? Should we require the disclosure of the use of third-party
data only for certain GHG emissions, such as Scope 3 emissions? Should
we require the disclosure of the use of third-party data for Scope 3
emissions, regardless of its materiality to the determination of those
emissions? If a registrant discloses the use of third-party data,
should it also be required to identify the source of such data and the
process the registrant undertook to obtain and assess the data, as
proposed?
    127. Should we require a registrant to disclose any material change
to the methodology or assumptions underlying its GHG emissions
disclosure from the previous year, as proposed? If so, should we
require a registrant to restate its GHG emissions data for the previous
year, or for the number of years for which GHG emissions data has been
provided in the filing, using the changed methodology or assumptions?
If a registrant's organizational or operational boundaries, in addition
to methodology or assumptions, change, to what extent should we require
such disclosures of the material change, restatements or
reconciliations? In these cases, should we require a registrant to
apply certain accounting standards or principles, such as FASB ASC
Topic 250, as guidance regarding when retrospective disclosure should
be required?
    128. Should we require a registrant to disclose, to the extent
material, any gaps in the data required to calculate its GHG emissions,
as proposed? Should we require the disclosure of data gaps only for
certain GHG emissions, such as Scope 3 emissions? If a registrant
discloses any data gaps encountered when calculating its Scope 3
emissions or other type of GHG emissions, should it be required to
discuss whether it used proxy data or another method to address such
gaps, and how its management of any data gaps has affected the accuracy
or completeness of its GHG emissions disclosure, as proposed? Are there
other disclosure requirements or conditions we should adopt to help
investors obtain a reasonably complete understanding of a registrant's
exposure to the GHG emissions sourced by each scope of emissions?
    129. When determining the materiality of its Scope 3 emissions, or
when disclosing those emissions, should a registrant be required to
include GHG emissions from outsourced activities that it previously
conducted as part of its own operations, as reflected in the financial
statements for the periods covered in the filing, in addition to
emissions from activities in its value chain, as proposed? Would this
requirement help ensure that investors receive a complete picture of a
registrant's carbon footprint by precluding the registrant from
excluding emissions from activities that are typically conducted as
part of operations over which it has ownership or control but that are
outsourced in order to reduce its Scopes 1 or 2 emissions? Should a
requirement to include outsourced activities be subject to certain
conditions or exceptions and, if so, what conditions or exceptions?
    130. Should we require a registrant that must disclose its Scope 3
emissions to discuss whether there was any

significant overlap in the categories of activities that produced the
Scope 3 emissions? If so, should a registrant be required to describe
any overlap, how it accounted for the overlap, and its effect on the
total Scope 3 emissions, as proposed? Would this requirement help
investors assess the accuracy and reliability of the Scope 3 emissions
disclosure?
    131. Should we permit a registrant to present its Scope 3 emissions
in terms of a range as long as it discloses its reasons for using the
range and the underlying assumptions, as proposed? Should we place
limits or other parameters regarding the use of a range and, if so,
what should those limits or parameters be? For example, should we
require a range to be no larger than a certain size? What other
conditions or guidance should we provide to help ensure that a range,
if used, is not overly broad and is otherwise reasonable?
    132. Should we require a registrant to follow a certain set of
published standards for calculating Scope 3 emissions that have been
developed for a registrant's industry or that are otherwise broadly
accepted? For example, should we require a registrant in the financial
industry to follow PCAF's Global GHG Accounting & Reporting Standard
for the Financial Industry when calculating its financed emissions
within the ``Investments'' category of Scope 3 emissions? Are there
other industry-specific standards that we should require for Scope 3
emissions disclosure? Should we require a registrant to follow the GHG
Protocol's Corporate Value Chain (Scope 3) Accounting and Reporting
Standard if an industry-specific standard is not available for Scope 3
emissions disclosure? If we should require the use of a third-party
standard for Scope 3 emissions reporting, or any other scope of
emissions, how should we implement this requirement?
3. The Scope 3 Emissions Disclosure Safe Harbor and Other
Accommodations
    We recognize that the calculation and disclosure of Scope 3
emissions may pose difficulties compared to Scopes 1 and 2 emissions,
which has caused concern for some commenters.\542\ It may be difficult
to obtain activity data from suppliers and other third parties in a
registrant's value chain, or to verify the accuracy of that
information. It may also be necessary to rely heavily on estimates and
assumptions to generate Scope 3 emissions data. For example,
registrants may need to rely on assumptions about how customers will
use their products in order to calculate Scope 3 emissions from the use
of sold products.
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    \542\ See, e.g., letter from Dimensional Fund Advisors; see also
supra note 422.
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    Depending on the size and complexity of a company and its value
chain, the task of calculating Scope 3 emissions could be
challenging.\543\ We expect that some of these challenges may recede
over time. For example, as more companies make their Scope 1 and 2
emissions data publicly available, these data can serve as the input
for other companies' Scope 3 calculations. In addition, large companies
that are voluntarily disclosing Scope 3 emissions information currently
are also working with suppliers to increase access to emissions data
and improve its reliability,\544\ which could have positive spillover
effects for other companies that use the same suppliers. Furthermore,
within certain industries, there is work underway to improve
methodologies and share best practices to make Scope 3 calculations
less burdensome and more reliable.\545\ Notwithstanding these
anticipated developments, calculating and disclosing Scope 3 emissions
could represent a challenge for certain registrants, in particular
those that do not currently report such information on a voluntary
basis.
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    \543\ While there may be less challenging approaches, such as
using industry averages or proxies for activity data (such as
economic data), the result may be less accurate and could obscure
the impact of choices that companies may make to reduce their Scope
3 emissions. For example, if a company uses industry averages to
calculate Scope 3 emissions from shipping its products, it may have
difficulty communicating to investors how its selection of a
shipping company that runs on lower emissions fuel or picks more
efficient routes has lowered its Scope 3 emissions.
    \544\ See, e.g., Apple, Environmental Social Governance Report
(2021), available at https://s2.q4cdn.com/470004039/files/doc_downloads/2021/08/2021_Apple_ESG_Report.pdf (stating that Apple
works with its suppliers to help address Apple's environmental
commitments, such as becoming carbon neutral by 2030 across its
entire product footprint).
    \545\ See, e.g., PCAF, The Global GHG Accounting and Reporting
Standard for the Financial Industry. In addition, the American
Petroleum Institute has developed an overview of Scope 3
methodologies to inform oil and gas companies about Scope 3
estimation approaches. See API and IPIECA, Estimating petroleum
industry value chain (Scope 3) greenhouse gas emissions, available
at https://www.api.org/~/media/Files/EHS/climate-change/Scope-3-
emissions-reporting-guidance-2016.pdf. Finally, an initiative
launched by food and beverage companies, Danone and Mars, together
with the Science Based Targets Initiative, aims to provide Scope 3
guidance to companies in difference industries, starting with the
food and beverage industry. See SB, Serious About Scope 3:
Pioneering Companies Embracing Complexity, Reaping the Benefits,
available at https://sustainablebrands.com/read/supply-chain/serious-about-scope-3-pioneering-companies-embracing-complexity-reaping-the-benefits.
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    To balance concerns about reporting Scope 3 emissions with the need
for decision-useful emissions disclosure, we are proposing the
following accommodations for Scope 3 emissions disclosure:
     A safe harbor for Scope 3 emissions disclosure from
certain forms of liability under the Federal securities laws; \546\
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    \546\ See 17 CFR 229.1504(f).
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     An exemption for smaller reporting companies (``SRCs'')
from the Scope 3 emissions disclosure provision; \547\ and
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    \547\ See proposed 17 CFR 229.1504(c)(3).
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     A delayed compliance date for Scope 3 emissions
disclosure.\548\
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    \548\ See infra Section II.M.
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    We are proposing a safe harbor for Scope 3 emissions disclosure to
alleviate concerns that registrants may have about liability for
information that would be derived largely from third parties in a
registrant's value chain. Many commenters recommended that the
Commission adopt a safe harbor for climate-related disclosures.\549\
These commenters asserted that a safe harbor would encourage
registrants to provide meaningful, quantitative metrics and analysis.
Other commenters focused their recommendation for a safe harbor on
certain types of climate-related disclosures, such as those pertaining
to scenario analysis, third-party derived data (such as Scope 3
emissions),\550\ or forward-looking statements generally.\551\ With
respect to Scope 3 emissions specifically, commenters recommended that
the Commission provide a safe harbor due to the reliance on estimates