(Reuters) – U.S. Securities and Exchange Commission (SEC) officials have told lobbyists and corporate executives in recent days that the agency’s long-anticipated climate rules may scale back some of the most demanding greenhouse gas emissions disclosure requirements that it had proposed.

At issue are so-called Scope 3 emissions that account for greenhouse gases released in the atmosphere from a company’s supply chain and the consumption of its products by customers, according to people familiar with the conversations.

In March 2022, the SEC proposed requiring publicly listed companies to disclose climate risks, including their Scope 3 emissions when they are “material” and when companies have set reduction targets for them.

The agency said such information is important for investors’ due diligence. Companies pushed back, arguing the data would be hard to produce and legally contentious.

Walking back the Scope 3 requirement would represent a win for those in the corporate world that lobbied against the changes and would deviate from European Union rules which would make Scope 3 disclosures mandatory for large companies starting in 2024.

In private meetings with representatives of companies and other stakeholders, some SEC officials have said that mandating Scope 3 disclosures could make the rule more vulnerable to legal challenges which, if successful, could tie the agency’s hands when writing other rules, according to the sources.

Those concerns were fueled by last year’s Supreme Court decision curbing the Environmental Protection Agency’s power to regulate greenhouse gas emissions. This raised doubts over whether SEC rules would survive a court challenge.

Some corporate groups and Republican lawmakers have argued that tackling climate change-related issues exceeds the SEC’s authority, and that the rules would be unduly burdensome for companies and cloud truly material information for investors.

The sources, who requested anonymity to talk about private conversations, said SEC officials did not indicate that a final decision has been made regarding the emission disclosure rules.

Nevertheless, the deliberations indicate that the agency’s top brass, led by Chair Gary Gensler, are inclined to back off from the proposal to make Scope 3 emission disclosures mandatory, the sources added.

The agency could still pursue a compromise, including requiring only companies that already report Scope 3 emissions for other legal jurisdictions to make disclosures, or letting companies provide the information separate from regulatory filings which would reduce legal liability, according to other industry participants tracking the rule.

An SEC spokesperson declined to comment on Scope 3 emissions and when the climate disclosure rules will be finalized.

“Based on the public feedback, the staff and the Commission consider possible adjustments to the proposals and whether it’s appropriate to move forward to a final adoption. The Commission moves to adopt rules only when the staff and the Commission think they are ready to be considered,” the spokesperson said.

CALIFORNIA RULES

Softening emission disclosures would be a blow for President Joe Biden’s agenda to tackle climate change through federal agencies. Biden, a Democrat, has been under pressure from many lawmakers in his party to do more and at a faster pace.

Even some advocates of climate action have expressed concerns about the logistical challenges of accurately calculating Scope 3 emissions. Even if the SEC stripped Scope 3 emissions from the rules, companies would be required to disclose emissions they are more directly responsible for, dubbed Scope 1 and Scope 2.

For many businesses, however, Scope 3 emissions represent more than 70% of their carbon footprint, according to consulting firm Deloitte.

Gensler, a Democrat, must win the backing of the agency’s two other Democratic commissioners to pass the rule with a 3-2 majority. Both Republican SEC commissioners are expected to vote against it. One has vocally opposed the proposal.

Gensler has raised doubts over whether Scope 3 disclosures are sufficiently “well-developed.”

This year, California adopted a law that will require companies active in the state to disclose Scope 3 emissions come 2027. Gensler told lawmakers in September this could make the SEC’s rule less costly, since many companies would already be producing the information.

Corporate lobbyists said companies would still be reluctant to include Scope 3 emissions in SEC filings, because of the risk of shareholder lawsuits.

Some voluntary initiatives such as the International Sustainability Standards Board already specify that it is best practice to disclose Scope 3 emissions.

Gensler told an event held by the U.S. Chamber of Commerce last month that he hoped the emissions disclosure rules, which received some 16,000 public comments, will survive any legal challenges once they are finalized and adopted.