September 15, 2022

At Hearing, Warren Calls on SEC to Stand Up to Fossil Fuel Lobbying and Finalize Strong Climate Disclosure Rule

"Companies like Exxon don't want to have to tell investors or the public about nearly 90% of their emissions… if Exxon and the American Petroleum Institute get their way, investors would remain in the dark about how companies would be affected down the line, when policymakers get serious about tackling climate change.”

Video of Hearing Exchange (YouTube)

Washington, D.C. – At a hearing of the Senate Banking, Housing, and Urban Affairs Committee, U.S. Senator Elizabeth Warren (D-Mass.) called out giant fossil fuel companies and their trade association, the American Petroleum Institute, for lobbying to weaken the Securities and Exchange Commission’s (SEC) proposed climate risk disclosure rule, which would require companies to disclose their greenhouse gas emissions. 

Fossil fuel industry groups are lobbying to drop Scope 3 disclosures from the final climate risk disclosure rule, which would require companies to disclose upstream emissions from the production of the things they buy and downstream emissions from what they sell. Scope 3 emissions comprise nearly 90% of fossil fuel companies’ emissions. Not requiring Scope 3 emissions disclosures would enable companies to hide the vast majority of their exposure to climate risk from regulators and investors.

Senator Warren called on SEC Chair Gary Gensler to protect investors and stand up to fossil fuel lobbying by issuing a strong climate risk disclosure rule quickly. 

Senator Warren has led the push for the SEC to issue a strong climate risk disclosure rule: 

  • In April 2021, Senator Warren reintroduced the Climate Risk Disclosure Act, directing the SEC to require disclosure of climate change-related risks, including a company’s strategies and actions to mitigate these risks.
  • In February 2022, Senator Warren led a letter to the SEC about the delayed release of the SEC’s proposed climate change disclosure rule, urging them to act quickly to get a rule out.
  • In March 2022, Senator Warren led a letter with Senators Sheldon Whitehouse (D-R.I.) and Brian Schatz (D-Hawaii) urging the SEC to require disclosure of anti-climate lobbying activities in the Commission’s rule.
  • In June 2022, Senator Warren led a comment letter with Senators Whitehouse and Schatz on the SEC’s mandatory climate disclosure rule, highlighting several areas for improvement and key elements that the SEC should preserve in its final rule, including strong Scope 3 emissions disclosure requirements.

Transcript: Oversight of the U.S. Securities and Exchange Commission
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Thursday, September 15, 2022

Senator Elizabeth Warren: Thank you, Mr. Chairman. In March, the SEC proposed a climate risk disclosure rule that takes a big step toward increasing the efficiency of the economy and financial markets by requiring companies to inform investors about the climate-related risks that affect their businesses. 

Now, as part of this rule, the SEC proposes that companies disclose their greenhouse gas emissions and companies' emissions are classified into three different categories called Scopes. 

So, Chair Gensler, just so we can set a baseline here, let's run through an example. Let's say I'm Exxon.

My Scope 1 emissions would be from things like my company's vehicles and methane leaks that occur at the wellhead of the wells that I own.

Scope 2 emissions would be those from electricity I purchase, for example, in order to power my operations. 

Scope 3 would cover upstream emissions from the production of what I buy, like the chemicals I use to refine my oil into gasoline or diesel fuel, and the downstream emissions from what I sell, like the refined gas or the diesel my customers buy at the pump. 

Do I basically have that right, Chair Gensler? 

Gary Gensler, Chair, U.S. Securities and Exchange Commission:  Yes.

Senator Warren: Good. So you need all three Scopes, because otherwise a company could just stop doing the filthiest part of their business and hire some smaller non-reporting company to do the same filthy work, and then report themselves as greener. 

So Chair Gensler, for a fossil fuel company like Exxon, what percentage of their total emissions are Scope 3 emissions?

Chair Gensler: I suspect you might know better than I, I  haven't looked, but it's often over half. It could well be in some companies. I don't know Exxon, some companies it's as much as 90%.

Senator Warren: Well, you're close on that last number. According to an S&P Global analysis, about 88% of the emissions of these fossil fuel companies like Exxon are Scope 3 emissions. So in other words, oil and gas companies have Scope 3 emissions that on average, as you say, it's about 90% of their total emissions. 

Now, the rule the SEC proposed in March already gives companies, in my view, way too much wiggle room in disclosing Scope 3 emissions. But evidently, that wiggle room is not enough benefit for Exxon. They and their trade association, the American Petroleum Institute, have been fiercely lobbying the SEC to drop Scope 3 disclosures entirely from the final rule. 

So Exxon wants to change the SEC proposal so the company would have to tell about emissions when their own work trucks were on the road, but not about emissions from all the other trucks that are fueled by Exxon diesel when they are on the road. Or to say it another way, companies like Exxon don't want to have to tell investors or the public about nearly 90% of their emissions.

And if Exxon and the American Petroleum Institute get their way, investors would remain in the dark about how companies would be affected down the line, when policymakers get serious about tackling climate change, and, for example, put significant restrictions on trucks that are powered by fossil fuels. 

So Chairman Gensler, if a company discloses only 12% of their total emissions to investors, do you think that investors have all of the information that they need in order to evaluate whether or not that company is well positioned to succeed in a greener economy with much stricter regulations on emissions?

Chair Gensler: So I look at it this way, that many companies today are already making commitments about all three of these Scopes. More or making commitments about Scopes 1 and 2, but many are also making commitments. And our proposal was, if you're making a public commitment about how you're managing it, you ought to measure it, because how do you manage that, what you don't measure? 

And then we also said if it was material, using a Supreme Court test of materiality that you would have to measure it, but we did get a lot of comments on this as you're right.

Senator Warren: So I understand this. But the question I'm asking you is actually much narrower. It's a straightforward investor question. If climate emissions are going to become more important in valuing businesses as the regulatory environment changes, if you only have to disclose 12% of your emissions, does an investor have the information they need to make a good investment decision?

Chair Gensler: So again, I'll quote from our comment file. If we look at the top 3 or 400, investor letters that we got that manage tens of trillions of dollars of assets, most, I don't remember the percent, most are supportive to have all three Scopes art of this disclosure. So that's straight from the investors rather than from me.

Senator Warren: Actually, and I think that's exactly the right point, because for months now, the big banks, the pension funds, and the investment management companies have been asking for this Scope 3 information because it is crucial to making good investment decisions. 

I appreciate that you are working to protect investors and not some particular industry because that is the job of the SEC and we are counting on you to do that. Thank you.

###