Australia urged to follow US push into Scope 3 disclosures

The SEC will require companies to break down their total emissions volumes into six different greenhouse gases – including carbon dioxide, methane and nitrous oxide – which will have particular relevance for Australian coal miners who release large volumes of methane gas when they uncover and disturb coal that was previously buried.

The SEC provided a list of activities that could be considered a source of Scope 3 emissions, including the commuting of employees.

“We are concerned that the existing disclosures of climate-related risks do not adequately protect investors. For this reason, we believe that additional disclosure requirements may be necessary or appropriate to elicit climate-related disclosures and to improve the consistency, comparability, and reliability of climate-related disclosures,” said the SEC in a statement.

Australian resources industry executive Alberto Calderon welcomed the increased focus on Scope 3 emissions, and said he was “absolutely convinced” that Australia should follow the US example by accelerating Scope 3 disclosures.

“Let’s focus on Scope 1 and Scope 2, but the elephant in the room is Scope 3,” he told the Melbourne Mining Club on Tuesday just hours after the SEC published its draft rules.

“I do think the world needs to look at [Scope] 1, 2 and 3 and mining companies, even though it is not their sole responsibility, they have to work with their clients in addressing this.“

Australian Securities and Investment Commissioner (ASIC) Cathie Armor has encouraged local companies to report Scope 3 emissions if they deemed it appropriate for their business, but there are no firm rules requiring reporting of Scope 3 emissions in Australia.

“We haven’t issued a rule around Scope 3, and any move to introduce a rule around scope 3 would be a matter for government,” said an ASIC spokeswoman on Tuesday.

While BHP and Rio now publish an estimate of their Scope 3 emissions, such calculations are challenging given those emissions are generated by other companies who may have different levels of disclosure.

The Scope 1 emissions of a steelmaker or power generator could notionally be the Scope 3 emissions of multiple iron ore and coal miners whose products are mixed and burned together to make the final product, leading many resources companies to warn that reporting of Scope 3 emissions were prone to “double counting”.

BHP said in its 2021 annual report that while it sought to influence its Scope 3 emissions, it was “not possible to reliably estimate or measure the full potential financial statement impacts of the group’s pursuit of its Scope 3 goals and targets”.

Mr Calderon was a senior executive at BHP until 2013, chief executive of Orica between 2015 and 2021 and is now CEO of multinational gold miner AngloGold Ashanti, and he said the fact big miners had started publishing their Scope 3 estimates meant the industry had “a big head start”.

Mr Calderon said industry groups like the International Council on Mining and Metals (ICMM) could help by developing agreed emissions accounting standards.

“It is not worked out, that is true,” he said of Scope 3 accounting standards.

“The ICMM’s of the world need to make guidelines and baselines for how do we count this.”

While the SEC’s new draft rules largely reflect the voluntary standards recommended by the Task Force on Climate-Related Financial Disclosures (TCFD), Washington based energy consultancy ClearView Partners said the new rules were a meaningful step which would have myriad flow-on effects.

“Today’s disclosure rule could reach well beyond publicly traded companies as regulated entities call on the privately held players in their value chains to disclose their emissions data for Scope 3 purposes,” the consultancy said in a note to clients.

“We think the new data sets could influence a lot more than investors’ assessments of risk premia. Consumers and commercial counterparties could factor new emissions disclosures into their purchasing, procurement and contracting decisions. Foreign governments could use the data sets when establishing carbon border adjustment protocols.

“Insurers could rely on disclosures in their risk calculations. Activists could brandish them when targeting influence campaigns and proxy battles. These dynamics could potentially accelerate emissions-intensive firms’ adoption of lower-carbon technologies.”

If endorsed by US lawmakers, the SEC signaled it expected the rules could take effect by December, meaning the new standards would probably first appear in the accounts filed by companies for the 2023 year.

The SEC suggests that companies bound by the Scope 3 reporting requirements should get an extra year’s grace before being required to report.

AngloGold Ashanti plans to halve emissions at its two Australian mines by 2030.

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