MANCHIN, HAGERTY URGE SEC TO RECONSIDER CLIMATE DISCLOSURE RULES

Letter

Dear Chairman Gensler:

The current regulatory agenda of the Securities and Exchange Commission (SEC) indicates the
SEC will soon finalize its climate disclosure rule.1 Putting aside the substantive issues underlying
this rulemaking,2 the effort to finalize the March 2022 proposal3 is concerning because recent developments should compel the SEC to solicit further public feedback on certain assumptions and the economic analysis underlying its proposal.

In October 2023, California enacted a new law that will require companies with over $1 billion
in annual revenues and that do business in California to publicly disclose -- on an annual basis --
their Scope 1, 2, and 3 emissions.4 These mandates would apply to both publicly-traded and
private companies, with disclosures for Scope 1 and 2 being required by 2026 and Scope 3 in
2027. An estimated 5,300 companies would be subject to the new rules.5 California enacted a
separate law that will require certain companies to provide biennial disclosures regarding
climate-related financial risks and steps taken by those companies to reduce climate risks,6
estimated to impact more than 10,000 companies.7

You have recently acknowledged that the California emissions laws "may change the baseline"
and affect how the SEC estimates the costs of compliance and economic impacts of its own
climate change disclosure rule.8 The interconnectedness of the California requirements and the
SEC's proposal is undeniable: thousands of businesses would end up being subject to both the
California requirements and the SEC's rule, if finalized. However, key differences between the
two approaches raise significant compliance questions that the SEC should thoroughly review.

1 See Spring 2023 Unified Agenda of Regulatory and Deregulatory Actions (indicating a final rule to be issued in October 2023).
2 See Letter from 12 Senate Banking Committee Republicans to SEC Chair Gary Gensler (June 15, 2022), available at https://www.sec.gov/comments/s7-10-22/s71022-20133994-303877.pdf
3 See The Enhancement and Standardization of Climate-Related Disclosures for Investors, 87 Fed. Reg. 21,334 (Apr. 11, 2022).
4 See SB 253, Climate Corporate Data Accountability Act.
5 See SB 253 Bill Analysis, available at https://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=202320240SB253.
6 See SB 261, Greenhouse Gases: Climate Related Financial Risk.
7 See SB 261 Bill Analysis, available at
https://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=202320240SB261
8 Douglas Gillison, "SEC chief says new California law could "change baseline' for coming SEC climate rule," Reuters (Sep. 27, 2023), available at https://www.reuters.com/sustainability/sec-chief-says-new-california-lawcould-change-baseline-coming-sec-climate-rule-2023-09-27/.

For example, under the California emissions laws, all covered entities will be required to disclose
Scope 3 emissions by 2027, while the SEC's proposal would only apply Scope 3 mandates to
companies in which such information is material or an issuer has established a greenhouse gas
emission reduction goal. In addition, the California State Air Resources Board is required to
adopt regulations to implement the greenhouse gas emissions data reporting requirements by
January 1, 2025, which would further complicate the ability of companies to come into
compliance with two overlapping but differing regimes. Because it is clear that the California
laws have "change[d] the baseline" for any further action by the SEC, the SEC should reopen the
comment period to solicit public feedback on its assumptions and economic analysis.

The application of the California emissions law to private businesses is also a significant
difference from the SEC's proposal. You have stated on several occasions that the SEC's
proposal is only intended to establish new rules for public companies, notwithstanding the
inevitable costs that would fall on thousands of private businesses that are part of a public
company's value chain and would have to produce emissions information.

The only way for the SEC to properly assess these questions in accordance with its obligations
under the Administrative Procedure Act (APA) is to reopen the climate disclosure proposal for
further public comment. The SEC took a similar step when it reopened the public comment
period for its stock buyback disclosure rule in December 2022 after passage of the Inflation
Reduction Act, which included an excise tax on stock buybacks.9

A general review of the SEC's proposed Scope 3 mandates -- particularly given the enactment of
the California emissions laws -- is critical. In the 18 months since the climate disclosure proposal
was first released, Congress has become increasingly alarmed at the likely true costs of the Scope
3 requirements on small businesses and agricultural producers that the SEC has no authority to
regulate. If the SEC cannot justify its costs -- or its authorities -- on Scope 3 emissions disclosure,
the SEC must drop Scope 3 disclosures from the final rule, irrespective of the actions taken by
the state of California.

The SEC must not deviate from its tripartite mission to protect investors, maintain fair, orderly,
and efficient markets, and facilitate capital formation, as well as its longstanding and wellestablished procedures in furtherance of that mission. Thank you for your attention to these
matters.

Sincerely,

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