Stealth SEC Climate Rule Could Create Chaos Down on the Farm

Remember this spring when the USDA dangled more than $2 billion worth of grant money so that someone might discover how to raise climate-smart commodities? Think of this as the multibillion dollar carrot to “encourage” producers to find a more climate-friendly approach to their work.

Ironically, during the time that the USDA was playing the role of good cop in this social and political drama concerning the fate of our planet, another bureaucratic agency was quietly making moves to fulfill its role as the bad cop. On March 21, 2022, the Securities and Exchange Commission proposed a rule that would require publicly held companies to provide extensive climate disclosures, including measured impacts for their entire supply chains.

So there it is—“their entire supply chain.” That’s the stick, a big stick, with potentially big consequences for those involved in the value chain—all the way down to the farm gate. Although farmers and ranchers are not public companies and, therefore, are not required to report directly to the SEC, the obligations to their regulated customers could be enormous. Those customers—examples include Walmart, Kellogg’s, Pepsi-Co and Levi Strauss—will be under enormous social and financial pressure to significantly reduce their scope 3 greenhouse gas emissions, which are emissions produced by activities occurring upstream and downstream in the value chain.

Direct Impact

The proposed rule’s expansive reporting requirements for scope 3 greenhouse gas emissions will directly affect farmers’ and ranchers’ operations. That’s because public companies must account for and disclose scope 3 greenhouse gas emissions under many—if not most—circumstances. In a real-world scenario, General Mills would have to monitor and manage all the greenhouse gas emissions that are part of its supply sheds. It all rolls downhill from the box of Wheaties at the supermarket to the General Mills production facility to processing mills and the grain elevator to the Kansas wheat farmer.

The SEC claims this requirement for greenhouse gas emissions disclosures would “provide investors with information useful in decision-making as an investor assesses a registrant’s exposure to and management of climate-related risks—and in particular, transition risks.” When mega investment firms such as BlackRock openly tout how a climate-first mantra affects their investment preferences, this rule is only going to make the job of picking winners and losers that much easier.

Because this “ruling” did not originate within USDA, the halls of Congress or even an executive order from the pen of President Joe Biden, the proposed “rule” has flown under the radar of mainstream agriculture for the most part. Originally, the SEC only gave farmers and the industry 39 days to review the proposal, and it made public comments due by May 20, 2022. After facing public pressure, the SEC extended the deadline to June 17, 2022. Significant comments and potential challenges could delay the proposal but are unlikely to derail it.

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