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Uncertainty In CRE As SEC Set To Roll Out Greenhouse Gas Disclosure Rules

Nearly two years after the Securities and Exchange Commission caused a stir in the commercial real estate industry by announcing the creation of new rules for reporting property emissions, those rules are stuck in the public comment stage.

Barring any more delays, however, the SEC is expected to consider finalizing the March 2022 proposal this spring, according to a filing at the end of 2023. Few in CRE are waiting with open arms, but the potential promise of clarity around some of the murkier nuances of sustainability tracking offers some solace.


“Let’s hope the SEC delivers some workable rules and brings rationality to this space, especially regarding Scope 3 indirect emissions,” Real Estate Roundtable Senior Vice President and Counsel Duane Desiderio said regarding the eventual release of the new regulations. “[SEC] Commissioner [Gary] Gensler has certainly indicated in some public statements that they've been closely looking at a final rule with regard to reporting on Scope 3 emissions.”

Institutional investors, pension funds, life insurance companies and sovereign wealth funds are all looking in the direction of what the SEC proposes, Desiderio said. The SEC’s proposed regulations would first apply to companies with $700M or more in assets. If the final rules follow the pattern of the preliminary rules, companies below that threshold would fall under the reporting requirements as they are phased in over time.

Though the details are still pending, under the new rules companies could be required to report their emissions according to their sources, which are categorized as Scope 1, 2 and 3.

Scopes 1 and 2 refer to the emissions created by direct activities like burning fuel to heat a building and indirect activities like using electricity, respectively. Scope 3 is one step further removed and encompasses the emissions caused by tenants in a building, for example. 

These are emissions property owners typically don’t have control over and have a hard time measuring. However, getting them under control is key to decarbonizing the built environment across the world because they account for 90% of building emissions, Bisnow found in an investigation last year.

The fact that owners don’t control these emissions should allow for the creation of a “safe harbor,” with respect to Scope 3, Nareit argued in a letter to the SEC on the proposed rules. The group also said reporting Scope 3 emissions should be voluntary.

Early last year, Politico reported that Gensler and his department were considering scaling back the proposed rules after receiving backlash from public companies across industries over how Scope 3 emissions reporting will be regulated. The commission has been threatened with legal action from business associations, including the U.S. Chamber of Commerce. On the other hand, environmental groups have threatened to sue if the rules don’t go far enough.

The goal of avoiding a lawsuit is the likely cause of delays in the rule-making process, Desiderio said. 

The Washington, D.C., headquarters of the Securities and Exchange Commission

“I’d be hesitant to predict that the SEC would completely abandon saying anything about Scope 3. But I’d be more inclined, you know, if we’re reading tea leaves here, looking into the crystal ball, they’ll treat the Scope 3 mandates differently than the Scope 1 or 2, as they did in the proposed rule.”

Still, litigation is likely, he said. 

“The only thing for certain is that the SEC will probably be confronted with a lawsuit,” Desiderio said. “But regardless of what litigation might occur, the market is certainly moving in the direction of the SEC rule.”

The industry in general says it’s headed in a more sustainable direction, even as it waits for the new rules to be announced. Some are looking forward to better tracking and guidelines stemming from the SEC’s rules to help set goals and move faster toward them.

“Our industry is already focusing on how we can accelerate change, and the SEC rules will further support that acceleration,” CBRE Managing Director of Sustainability Solutions Stephanie Greene told Bisnow in an email. “We see the SEC regulations putting significant pressure on requiring companies to have financial grade, auditable greenhouse gas inventory data.”

Companies should also expect a new level of scrutiny on this data, according to Greene. And, as with any new rules, until there is further clarity and some early best practices, the first stages will see different views and models. Some companies will be early leaders while others will need to catch up.

Reporting is important for investors because without the data it generates, there isn't a way to determine the effectiveness of emissions reduction efforts at a company level or an industry level, according to Gregory Hershman, head of U.S. policy at Principles for Responsible Investment, an ESG advocacy group.

“We need more consistent and comparable data,” Hershman said. “Consistent and comparable across companies, but also across years.”

Consistency is also what will bring clarity, Hershman said.

“If we're going to ask for Scope 2 and Scope 3 information — what are the numbers, how is that data presented — we understand it is a burden,” he said. “Most companies have to gather it.”

The best way to create the smallest possible burden is to make it so that everyone around the world asks for the same information in the same way, which is why the standards are important, he said.

“In the short run, Scope 3 will be the hardest part,” Hershman said. “But in the long run, it's pretty clear that Scope 3 will be expected to be disclosed by everyone, and over time the information will be more and more accurate.”