6 takeaways from the massive debate about the SEC's proposed new climate rule

• The SEC proposed a new rule regarding climate-risk disclosure in March.
• It asked the public to weigh in — and many large companies answered the call.
• Here are the key takeaways.

In March, the Securities and Exchange Commission proposed a big rule change, one that would require registered companies to disclose climate risk. The agency asked the public for comments, and major companies — in industries from finance and tech to consulting and retail — have weighed in.

Gary Gensler, the chair of the SEC, told Insider the proposed plan is to make environmental, social, and governance, or ESG, reporting more formalized. Since we're over three months into that hearing process, Insider went through the responses to look for trends and standout replies.

Here's what we found.

The Task Force on Climate-Related Financial Disclosures, or TCFD, is popular

From Deutsche Bank to Etsy, many of the responding firms called out preexisting ESG frameworks as inspirations to draw from. The most popular is TCFD, a set of letters you should get used to if you're interested in climate policy.

The Financial Stability Board — which a number of international bodies created in the wake of the Great Recession in 2008 — established the TCFD in 2015. The task force developed its own set of international recommendations for climate reporting, with "core recommendations" centered around governance, strategy, risk management, and metrics and targets.

TCFD — which Michael Bloomberg, the CEO of Bloomberg, chairs — has gained support from 3,600 companies in 95 countries, the organization told Insider.

But companies have framework fatigue

There are many reporting frameworks like this one. Trying to adhere to several of them replicates work for issuing companies. By their nature, many of these organizations operate globally, and the climate crisis is a global issue.

"In our view, there are too many frameworks that companies are asked to align their reporting to, which makes it difficult for investors to compare across companies and for companies to organize and publish ESG-related information," Prat Bhatt, Cisco's SVP and chief accounting officer, said in a statement. "As such, we believe a global framework would be ideal, but it may not be practicable unless there is widespread support and adoption by all stakeholders of such a global framework."

KPMG, a global accounting firm, added that without a global framework, there will be less consistency, clarity, and reliability, all owing to the lack of standardization.

Getting the world to agree on a single set of standards is a major undertaking, but having the SEC put its weight behind a standard could help formulate that global consensus.

One point of contention: Scope 3 reporting

Within greenhouse-gas emissions, scope 1 is "direct," the kind that comes from company vehicles or facilities, while scope 2 is "indirect," taking the form of energy purchased for the company's own use. Scope 3 is also indirect, but it covers everything scope 2 does not — a full 15 categories ranging from waste generation and employee travel to the use of products the company has sold.

As You Sow, a shareholder-advocate group, made an argument for requiring scope 3 reporting, noting research from this year that found that among 25 large companies, 87% of total emissions were scope 3, but just under a third of those companies disclosed moderately detailed plans regarding what they were going to do about it. Danielle Fugere, the president of As You Sow, said not requiring scope 3 reporting would be a big miss.

"Without rules requiring reporting on all 15 scope 3 categories, investors may assume that a company reporting its scope 3 emissions is reporting in full, while in reality, it is reporting only a fraction of such emissions," she said. "Further, required reporting of only scope 1 and 2 emissions can incentivize companies to outsource emissions to supply chains, making it appear that they are reducing emissions while, in reality, those emissions are being located elsewhere."

Scope 3 has its critics, because — as noted in the Harvard Business Review and elsewhere — it can be hard to get good data on all those outputs.

How synced should ESG reporting be with preexisting quarterly and annual reports?

Companies disagreed on whether this reporting should follow the regular quarterly and annual reporting schedule or be on an alternative timeline.

FedEx, for example, pointed out that ESG information isn't available in the same time frame as the financial information current reports require.

But PricewaterhouseCoopers argued that "investors should be provided with an integrated, holistic report including both financial and non-financial information" — so climate disclosures should be included in an annual report.

But what about going beyond climate?

There's more to ESG than just the "E."

Martin Whittaker, the CEO of JUST Capital, pointed this out in his statement asking that the SEC create a set of standard metrics "that includes but is not limited to climate-related disclosure."

For example, while there's been discussion around diversity, equity, and inclusion, the numbers are still meager. According to Whittaker, just 31 of the 100 largest companies acknowledge having done a race-and-ethnicity-based pay-equity analysis, and just under half of those — 14 companies — have publicized the results.

Making a new norm

In its comments, Walmart said that the SEC needs to foster a cultural shift of sorts. What needs to emerge is a "GAAP for ESG" — referring to the Generally Accepted Accounting Principles that govern how public companies file their financial statements.

"The financial reporting field has taken 80 years to mature to where it is today: detailed standards and interpretations informed by experience, a robust body of practice, and processes to assure accuracy and integrity," Kathleen McLaughlin, David Chojnowski, and Gordon Y. Allison, three Walmart executives, argued. "We believe ESG reporting will mature far more quickly but needs to follow a similar path."