This week, the NC Chamber hosted a webinar on “,” and unless you’re still in isolation, you’ve heard this phrase and probably wondered what it might mean for agriculture. In fact, if we are being honest, most of us probably hear it and shrug our shoulders, concluding that it will be a long time before it impacts our business. The takeaway from our webinar was that such a conclusion would be perilous. Those three letters, which stand for “Environmental, Social, and Governance,” have so much potential to change the future of the agriculture industry – right down to the farm level. Here’s why.
In reality, there are two forces at work here. One is the market. The other is government policy and the regulation that enforces that policy. Regarding the market, there is no denying that the rise in investment consciousness has many investors looking not only for solid returns, but also for assurances that the companies they are capitalizing are responsible corporate citizens. That they do not contribute to environmental degradation in any way. That they are on the right side of social trends (including their reputation for how they interact with customers), labor relations (their employees), and yes, even politics. And finally, that they are governed (e.g., their board structure and membership, compensation, and oversight of executives, etc.) in a way that reflects the values of the company and its “stakeholders.”
Regarding the force of government policy, this shows up in a myriad of ways. First, Congress can always pass a law that directly regulates ESG-like components of corporate behavior. More commonly, however, Congress makes broad delegations to federal agencies that are then tasked with implementing the aims and purposes of that legislation through rulemaking and enforcement activity. Most relevant here, the Securities and Exchange Commission recently proposed a on this topic which span nearly five hundred pages and which contain over one thousand footnotes.
Lurking within those proposed rules is a requirement that certain public companies disclose their “Scope 3 Greenhouse Gas Emissions.” What in the world are “Scope 3” emissions? I’m glad you asked. Let’s start with Scope 1 and 2 emissions – those from the company’s own operations and from the generation of power procured and used by the company. Scope 3 emissions include everything else. Indeed, the rules themselves refer to Scope 3 emissions as “all other indirect emissions not accounted for in Scope 2 emissions.” Thus, these are the emissions that are not within the control of the company, but which might be attributable to entities who serve the company as a supplier or who contribute elsewhere in the reporting company’s value chain.
To be sure, there are some exceptions from reporting, but the bottom line here is that the SEC apparently intends to implement a rule that would leave little choice but for larger companies to force their suppliers to report their greenhouse gas emissions.
If you’re thinking what I’m thinking, then I think we are both right: this rule may appear on its face to impact only the largest companies, or maybe even only those who have publicly committed to certain ESG goals, but, in reality, they will, as proposed, have huge impacts on nearly every entity that serves the agri-food value chain.
General Counsel, NC Chamber
President, NC Chamber Legal Institute