Financial Materiality and the Politics of Scope 3 Emissions in U.S. Securities Regulation

Abstract

This article examines the political contestation surrounding Scope 3 emissions disclosure in United States financial regulation to explain the institutional limits of disclosure-led climate governance. Climate disclosure is formally justified on the basis of financial materiality, positioning it as a neutral extension of investor protection within securities regulation. However, the regulation of Scope 3 emissions (indirect emissions across corporate value chains) has exposed fundamental tensions within the Securities and Exchange Commission’s (SEC) regulatory framework, particularly when such emissions occur outside a firm’s direct operational control. Drawing on analysis of the SEC’s climate disclosure rulemaking and stakeholder submissions, the article demonstrates that financial materiality operates not simply as a technical disclosure standard but as a regulatory boundary defining the scope of financial authority over climate risk. Climate-related risks become financially material only under specific conditions, as illustrated by Peabody Energy’s bankruptcy filing amid the transition away from coal and Pacific Gas and Electric’s wildfire-related bankruptcy linked to escalating physical climate hazards. Climate litigation targeting downstream emissions of oil and gas corporates further illustrates how value chain emissions may generate financial risk through legal liability. Yet the financial materiality of value-chain emissions remains unevenly shaped by regulatory geography and political economy. Emissions embedded in jurisdictions with weaker climate regulation or strong state support for carbon-intensive industries often generate limited firm-level financial risk despite contributing substantially to systemic climate vulnerability. The exclusion of mandatory Scope 3 disclosure from the SEC’s final rule therefore reveals the structural limits of disclosure-led climate governance, demonstrating how the boundaries of corporate climate accountability are determined not only by climate risk but by the institutional mandates and political constraints that shape financial regulation.