The Securities and Exchange Commission (SEC) ruled on a softer version of its corporate climate-related disclosures proposal, omitting reporting requirements for scope 3 supply chain greenhouse gas (GHG) emissions – the source of a substantial portion of many companies’ environmental impact.

In spite of the loosened rules, a survey from Workiva shows more than three-fourths of institutional investors are most interested in funding companies that integrate financial and environmental data. In response, IT leaders are expected to increase their attention on decarbonizing enterprise cloud and data center architectures and finding innovative ways to use technology to support environmental compliance.

The SEC’s new rule requires that large, publicly-traded companies reach compliance by 2026. Mid-sized publicly-traded companies have until 2028. The SEC estimates the rule will impact 2,800 organizations in the United States and 540 international companies.

The rule’s compliance requirements span GHG emissions reporting for scope 1 and scope 2 emissions, but only in areas deemed material, or relevant, to the reporting company. The SEC’s initial proposal, however, included scope 3 reporting requirements for material areas and required complete scope 1 and scope 2 emissions reporting regardless of materiality.

Related: What are greenhouse gases?

“With this rule, the SEC did what it does best – they created an aggressive proposal then cut it down significantly in the final ruling,” Forrester Sr. Analyst Alla Valente told SDxCentral. The ruling did, however, leave “enough meat on the bone to make a meaningful change to the ‘what’ and the ‘how’ companies disclose climate-related risks,” Valente said.

While the ruling marks a significant milestone, “the omission of mandatory scope 3 emissions reporting is a disappointment,” William Theisen, CEO of climate consultancy EcoAct, told SDxCentral. “This critical component in the climate puzzle remains voluntary,” he said.

Scope 3 emissions are a massive category that covers the environmental impacts of a customer’s use of the company’s sold products, obtaining raw materials and shipping and distribution, for example. Mandatory reporting of scope 3 emissions would improve data availability across the supply chain and lead to accelerated improvement in GHG accounting and reduction, according to Theisen.

The rule’s scope 1 and 2 emissions requirements aren’t insignificant, but they “are incomplete on their own,” Optera CEO Tim Weiss told SDxCentral. “Markets need accurate and actionable data to assess a company’s true climate risk and maturity,” he argued.

Furthermore, the ruling sets “a relatively low bar in comparison to other widely-accepted climate disclosure requirements,” like those established by the International Sustainability Standards Board (ISSB) and the EU’s Corporate Sustainability Reporting Directive (CSRD), Workiva VP Steve Soter told SDxCentral.

While dropping the scope 3 requirement significantly eases the compliance burden on businesses, and especially their suppliers, the rule’s disclosure of board of directors’ oversight pushes accountability to the top. This “smart” move ensures the rule isn’t whittled down to a check-box compliance exercise and supports genuine paths toward standardization on climate-related risks and their impacts on businesses, Valente said.

In light of the ruling, Forrester recommends that technology leaders address decarbonization in their enterprise architectures and find technology solutions and services that will augment their sustainability efforts.

A significant portion of scope 1 and scope 2 emissions stem from cloud and data center operations for many industries, including financial services. Analysts recommend leadership teams identify low-hanging fruit like renewable energy procurement and data center energy efficiency innovations.

Forrester also highlighted technology like IoT, smart buildings, automated data collection and using artificial intelligence (AI) for sustainability monitoring as avenues for reaching compliance.