S&P 500 Firms Rarely Disclose Emissions to SEC as Rules Loom (2024)

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Varied Reporting Financial Risk

S&P 500 companies are mostly steering clear of providing greenhouse gas emissions disclosures in their annual reports to the SEC, as rules requiring such climate reporting face an uncertain future.

Only 126 of the 410 companies listed on the S&P 500 stock index that filed their 10-K reports to the Securities and Exchange Commission through May this year discussed pollution from their direct operations and energy usage in those filings, according to a Bloomberg Law review. Even the roughly one-third of companies that did mention so-called Scope 1 and 2 emissions by name in their 10-Ks did not necessarily provide the detailed pollution figures that the SEC’s March 6 rules would require.

S&P 500 companies referencing Scope 1 and 2 in their 10-Ks jumped more than seven-fold between 2020 and 2022, the year the SEC announced plans to require emissions disclosures in the reports. But references have plateaued since then, even as SEC officials signaled a commitment to at least some emissions reporting requirements and brought more scrutiny to climate disclosure discrepancies between companies’ mandatory 10-Ks and their voluntary environmental, social and governance reports.

Emissions disclosures more commonly appear in companies’ ESG reports, which have less visibility and fewer safeguards against inaccurate information than 10-Ks. The SEC adopted the climate disclosure rules in an effort to bring investors more consistency and facilitate easier comparisons across businesses.

The agency froze the regulations in April amid lawsuits from Republican attorneys general and various business interests saying the regulator overstepped its authority. But the SEC hasn’t said how quickly it would require emissions reporting should the rules return to force, leaving companies little time to prepare for the disclosures if the agency moves fast and they aren’t already up to speed.

Among the companies that have mentioned Scope 1 and 2 emissions explicitly in their 10-Ks since 2020, there was a range in how detailed the references were.

Hilton Worldwide Holdings Inc. and Olive Garden owner Darden Restaurants Inc. reported amounts of Scope 1 and 2 emissions in their 10-Ks rather than simply making broad references, for instance, and are the only S&P 500 members to have done so in each of their 10-Ks since at least 2020. Microsoft Corp. and other companies that referenced Scope 1 and 2 during that five-year period largely focused on emission level trends, net-zero goals or their broader work fighting climate change.

Most companies don’t want to disclose information their peers aren’t reporting, even if investors would find the details important, said Jill Fisch, a University of Pennsylvania Carey Law School professor, who studies corporate governance and securities regulation.

“There’s a risk that you’re going to look bad because everybody doesn’t have a basis for comparison,” Fisch said. “Mandatory disclosure is designed to get over that collective action problem.”

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Varied Reporting

Bloomberg Law searched for 10-K mentions of the words “Scope 1” and “Scope 2,” as well as various iterations of the terms, from January 2020 to May 2024. The review was limited to members of the S&P 500 index, which tracks 500 of the biggest publicly traded companies on US stock exchanges.

The SEC’s rules require big companies to annually report their Scope 1 and 2 emissions separately in terms of their carbon dioxide equivalent, or CO2e, which measures the greenhouse gases businesses release. A US company’s 10-K must include the metrics or its plans to disclose the statistics in an amended 10-K or a 10-Q report in its second quarter, according to the regulations.

SEC Chair Gary Gensler said when the rules were released in March that company shareholders are increasingly making investment decisions hinged on climate risk, based, in part, on Scope 1 and 2 data. The chair hinted in the years leading up to the regulations’ release that the SEC had fewer qualms about requiring Scope 1 and 2 reporting than disclosures on Scope 3 emissions, which come from companies’ supply chains, sold products and other indirect sources. The SEC included Scope 3 reporting directives in its 2022 proposal, but ultimately scrapped its plans after intense pressure from business groups, Republicans and some Democrats.

Although the final rules have Scope 1 and 2 reporting provisions, companies can skip the disclosures if they decide the numbers aren’t material, or important to a reasonable investor, according to the regulations. The SEC permitted that flexibility after the US Chamber of Commerce, West Virginia Attorney General Patrick Morrisey (R) and others fought against agency plans in 2022 to require Scope 1 and 2 emissions regardless of whether companies considered them material. Morrisey and the business interests still filed lawsuits, which are pending against the SEC in the US Court of Appeals for the Eight Circuit.

Hilton and Darden both included charts with Scope 1 and 2 emissions in terms of CO2e in their most recent 10-Ks. But only Hilton separated Scope 1 emissions from Scope 2 in the 10-K it filed this year. Darden, which owns Ruth’s Chris Steak House and LongHorn Steakhouse, in addition to Olive Garden, did differentiate between the two types of emissions in environmental disclosures posted on its website, outside of its latest 10-K, which it submitted in 2023.

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The vast majority of the S&P 500 industry peers of Hilton and Darden have revealed less in their 10-Ks, including competitors within the same industries.

Marriott International Inc. and McDonald’s Corp., for example, haven’t disclosed their Scope 1 and 2 emissions in their 10-Ks since at least 2020. But that information appears in their ESG reports.

Marriott and McDonald’s both discussed emissions generally in their 10-Ks, without referencing Scope 1 or 2 directly or reporting CO2e figures. Marriott, for instance, said in the 10-K it filed this year that the hotel company is committing to set emissions reduction goals. McDonald’s said in the 10-K it submitted this year that restaurant chain has initiatives to reduce emissions. Neither company quantified emissions reduction targets in the 10-K.

Hilton started disclosing Scope 1 and 2 emissions in its 10-K in 2020, after reporting environmental data on its website since 2011, said Jean Garris Hand, vice president of global ESG for the hotel company. The company collects data from its more than 7,600 managed and franchised properties to calculate its emissions levels, which an independent third party reviews, she said.

“It’s simply best practice to have robust governance procedures that ensure we’re accountable and transparent in our sustainability efforts,” Garris Hand said in a statement.

Marriott, Darden and McDonald’s representatives didn’t respond to requests for comment.

Financial Risk

Although roughly two-thirds of S&P 500 companies avoid the words Scope 1 and 2 emissions in their 10-Ks, some companies provide related information in the reports.

Microsoft disclosed in its most recent 10-K from 2023 that its Scope 1 and 2 emissions declined. That’s more information than S&P 500 competitor Amazon.com Inc. The technology giant didn’t mention emissions at all in its most recent 10-K or others since at least 2020, relegating climate data to its sustainability report.

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A Microsoft spokesperson declined to comment. An Amazon representative didn’t respond to requests for comment.

Companies don’t necessarily see emissions as a major financial risk that warrants reporting, said S.P. Kothari, the SEC’s chief economist during the Trump administration. Some companies just may be using their disclosures to send a message about climate change, he said.

“There is an element of managing social perceptions,” said Kothari, now a professor at the Massachusetts Institute of Technology Sloan School of Management. “That is a legitimate reason. There’s nothing wrong with that.”

S&P 500 Firms Rarely Disclose Emissions to SEC as Rules Loom (2024)
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