(CNN) — Regulators on Wednesday passed a rule requiring companies to share how much they pollute. But, after two years of backlash, the final rule was significantly watered down from its original version.

Some business leaders said the rule overstepped; climate activists argued it didn’t do enough. The version the Securities and Exchange Commission passed won’t require companies to include some of the secondary climate effects of their products.

On Wednesday, SEC chairman Gary Gensler said he thought the finalized rules would “produce more useful information to investors. Far more useful, I think, than what they get today.”

Parts of the rule will take effect in 2025 and it comes amid a push by the Biden administration to tackle climate change.

“This was a widely expected political compromise in an election year,” Shivaram Rajgopal, a professor of accounting and auditing at Columbia Business School said.

Some emission requirements are absent from the final rule

The newly adopted rule dropped one of the most contentious elements of the SEC’s initial March 2022 proposal, requiring companies to disclose emissions they are indirectly responsible for, called scope 3 emissions. Scope 3 emissions from an oil company, for example, might be the thousands of metric tons of carbon dioxide produced by gas-powered vehicles, even though oil companies do not produce cars.

Critics have argued that tracking those emissions would be overly expensive and difficult for companies.

The final rule requires large public companies to disclose scope 1 and scope 2 pollution generated by their business operations only when a company determines that information is material, meaning that it is important information to share with investors.

Scope 1 and 2 are direct and indirect greenhouse gas emissions produced as a company conducts its business, such as waste produced by a manufacturing process or the amount of air conditioning used in an office building.

The new rules also require companies to share physical risks posed by climate change, including the threat of rising natural disasters like wildfires or hurricanes.

A controversial proposal

Gensler has faced accusations of caving to business interests and Republican lawmakers by dropping some emissions requirements.

“There is unfortunately a glaring problem with some of what I think are the political compromises that appear to have been made here,” said former acting chair and SEC commissioner Allison Herren Lee on Wednesday.

On Wednesday, Gensler said scope 3 emissions were dropped “based upon public feedback.”

But even as some companies are concerned with the costs of tracking emissions, investors seem to welcome the new rules. According to a survey of 103 institutional investors by Workiva, a reporting compliance company, 91% believe new climate disclosure regulations will help them make more informed investments.

Still, the SEC’s rule has been criticized by some groups who say it doesn’t go far enough.

“This omission means companies will not have to disclose a category of heat-trapping emissions that account for 80-90% of total emissions in some industries, such as oil and gas,” a statement from the Union of Concerned Scientists said.

The Sierra Club, an environmental organization that pushes financial institutions to reduce investments in fossil fuels, called the rule a “positive step,” albeit one that “falls significantly short of what’s needed.”

On Wednesday, Gensler said that the SEC has “no role” regarding climate risk and that the rule is focused on providing accurate disclosures for investors.

Critics say the rule still goes too far

Opponents of the rule say that even the new watered-down version is an overstep for the SEC.

Hester Pierce, an SEC commissioner who voted “no” on the rule, argued that the agency is underestimating the financial burden that tracking emissions and climate risk will pose for public companies.

“At a time when few companies are choosing to go public, why would we add so substantially to the price tag?” she said.

Republican South Carolina Sen. Tim Scott called the rule “federal overreach at its worst,” in a statement Wednesday.

“Ignoring the concerns of Americans, small business owners, and stakeholders from across the country, Chair Gensler pressed forward with a final rule that falls outside his agency’s authority and does far more to advance the Biden administration’s far-Left climate agenda than uphold the SEC’s mandate to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

Separate rules require more emission disclosures

American multinational companies in Europe and California will likely have to report scope 3 emissions, even without the SEC’s rule.

The SEC rules “set a relatively low bar in comparison to other widely accepted climate disclosure requirements,” said Steve Soter, a vice president and accountant at Workiva.

In October, California Governor Gavin Newsom signed a climate disclosure bill requiring private and public companies that do business in California to disclose scope 1, 2 and 3 emissions beginning in 2026.

California’s bill comes after Europe passed its own rule, called the Corporate Sustainability Reporting Directive. It forces certain companies that do business in Europe to publish information on environmental and social matters. That rule took effect in January 2023.

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