May 20, 2021
Questions for Consideration
1. How can the Commission best regulate, monitor, review, and guide climate change disclosures in order to provide more consistent, comparable, and reliable information for investors while also providing greater clarity to registrants as to what is expected of them? Where and how should such disclosures be provided? Should any such disclosures be included in annual reports, other periodic filings, or otherwise be furnished?
The Commission should issue risk assessment and management reporting requirements as defined in Q2 below, identifying only those data deemed essential for understanding a reporters climate change program. The requirements could be tailored by sector to always require discussion of certain risks inherent in an industry ( oil and gas, stranded assets transportation, product emissions, etc.) To assure data quality, the Commission should require these data to be included in regulated reporting. In my 12 years experience of reporting Greenhouse gas and climate related data, I can assure you the level of data quality and review associated with regulated filing data and those submitted to non-regulated formats such as CDP is dramatically different.
2. What information related to climate risks can be quantified and measured? How are markets currently using quantified information? Are there specific metrics on which all registrants should report (such as, for example, scopes 1, 2, and 3 greenhouse gas emissions, and greenhouse gas reduction goals)? What quantified and measured information or metrics should be disclosed because it may be material to an investment or voting decision? Should disclosures be tiered or scaled based on the size and/or type of registrant)? If so, how? Should disclosures be phased in over time? If so, how? How are markets evaluating and pricing externalities of contributions to climate change? Do climate change related impacts affect the cost of capital, and if so, how and in what ways? How have registrants or investors analyzed risks and costs associated with climate change? What are registrants doing internally to evaluate or project climate scenarios, and what information from or about such internal evaluations should be disclosed to investors to inform investment and voting decisions? How does the absence or presence of robust carbon markets impact firms analysis of the risks and costs associated with climate change?
Id recommend the following information on climate risks:
- Description of company climate related risk assessment process. Investors can decide if it is adequate or not
- Identification of all risks deemed potentially material as identified in the risk assessment process
- Company strategy to mitigate each material risk
I dont recommend requiring GHG inventories and targets, since those dont serve as adequate indicators for the actual risks faced by a reporter. For example, my company emitted approximately 2 million metric tons of operational related CO2e per year, and reduced annual emissions by 3% each year 2010 2019. Our greatest potential risk came from the use of our products, which had nothing to do with our Scope 1 and 2 emissions.
3. What are the advantages and disadvantages of permitting investors, registrants, and other industry participants to develop disclosure standards mutually agreed by them? Should those standards satisfy minimum disclosure requirements established by the Commission? How should such a system work? What minimum disclosure requirements should the Commission establish if it were to allow industry-led disclosure standards? What level of granularity should be used to define industries (e.g., two-digit SIC, four-digit SIC, etc.)?
The advantage of this approach is that it will hopefully provide material and sector specific information with not extraneous data requirements. The challenge will be establishing a system where the Commission is able to review and vet proposed reporting from dozens of sectors. An additional challenge would be how to treat reporting from sector members who disagree with the majority opinion from within their sector.
4. What are the advantages and disadvantages of establishing different climate change reporting standards for different industries, such as the financial sector, oil and gas, transportation, etc.? How should any such industry-focused standards be developed and implemented?
If the goal is to identify risk, sector based reporting presumably wont be needed, other than the inclusion of reporting of industry wide risks, such as stranded assets for oil and gas companies.
5. What are the advantages and disadvantages of rules that incorporate or draw on existing frameworks, such as, for example, those developed by the Task Force on Climate-Related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB), and the Climate Disclosure Standards Board (CDSB)?7 Are there any specific frameworks that the Commission should consider? If so, which frameworks and why?
The TCFD risk assessment process, including its guidance on governance and scenario modeling, provides an excellent framework for companies to use. The SASB focus on inclusion of only data material to a sector is good in that it eliminates the waste associated with reporting of immaterial information. That said, SASB didnt get it completely right for several of its sectoral reporting data requirements.
6. How should any disclosure requirements be updated, improved, augmented, or otherwise changed over time? Should the Commission itself carry out these tasks, or should it adopt or identify criteria for identifying other organization(s) to do so? If the latter, what organization(s) should be responsible for doing so, and what role should the Commission play in governance or funding? Should the Commission designate a climate or ESG disclosure standard setter? If so, what should the characteristics of such a standard setter be? Is there an existing climate disclosure standard setter that the Commission should consider?
Disclosure requirements should be reviewed and potentially updated every 2 years, in keeping with the pace of evolving climate related science, regulatory and market changes. The Commission should designate one external standard change setter, who could assess changes to underlying science etc. over the intervening 2 year period, and issue guidance for the modification of current disclosure standards.
7. What is the best approach for requiring climate-related disclosures? For example, should any such disclosures be incorporated into existing rules such as Regulation S-K or Regulation S-X, or should a new regulation devoted entirely to climate risks, opportunities, and impacts be promulgated? Should any such disclosures be filed with or furnished to the Commission?
The Commission should include climate-related disclosures in current rules. Climate is just one more type of risks for investors to consider, and including it in documents already in use will be effective.
8. How, if at all, should registrants disclose their internal governance and oversight of climate-related issues? For example, what are the advantages and disadvantages of requiring disclosure concerning the connection between executive or employee compensation and climate change risks and impacts?
Id require a description of governance and oversight of climate related risks as part of the risk assessment and management process. Im not sure requiring a connection between compensation and risk mitigation is necessary. Companies that do this will likely report this as a sign of their seriousness about risk mitigation. In other instances, companies that dont tie compensation to performance on climate might use other methods to drive improvements.
9. What are the advantages and disadvantages of developing a single set of global standards applicable to companies around the world, including registrants under the Commissions rules, versus multiple standard setters and standards? If there were to be a single standard setter and set of standards, which one should it be? What are the advantages and disadvantages of establishing a minimum global set of standards as a baseline that individual jurisdictions could build on versus a comprehensive set of standards? If there are multiple standard setters, how can standards be aligned to enhance comparability and reliability? What should be the interaction between any global standard and Commission requirements? If the Commission were to endorse or incorporate a global standard, what are the advantages and disadvantages of having mandatory compliance?
Id recommend a common requirement of risk identification and management reporting, per Q2 above. It is a core concept that investors in any company in any location can understand and use in their decision making.
10. How should disclosures under any such standards be enforced or assessed? For example, what are the advantages and disadvantages of making disclosures subject to audit or another form of assurance? If there is an audit or assurance process or requirement, what organization(s) should perform such tasks? What relationship should the Commission or other existing bodies have to such tasks? What assurance framework should the Commission consider requiring or permitting?
I would make disclosures subject to audit.
11. Should the Commission consider other measures to ensure the reliability of climate-related disclosures? Should the Commission, for example, consider whether managements annual report on internal control over financial reporting and related requirements should be updated to ensure sufficient analysis of controls around climate reporting? Should the Commission consider requiring a certification by the CEO, CFO, or other corporate officer relating to climate disclosures?
12. What are the advantages and disadvantages of a comply or explain framework for climate change that would permit registrants to either comply with, or if they do not comply, explain why they have not complied with the disclosure rules? How should this work? Should comply or explain apply to all climate change disclosures or just select ones, and why?
At a minimum, companies should identify a climate change risk assessment process, since without that, how can investors know they are adequately determining climate risk. Given the potential burden or such a program, the Commission could consider making it applicable to only those companies with combined Scope, 1,2 and 3 emissions over a certain minimum threshold number.
13. How should the Commission craft rules that elicit meaningful discussion of the registrants views on its climate-related risks and opportunities? What are the advantages and disadvantages of requiring disclosed metrics to be accompanied with a sustainability disclosure and analysis section similar to the current Managements Discussion and Analysis of Financial Condition and Results of Operations?
14. What climate-related information is available with respect to private companies, and how should the Commissions rules address private companies climate disclosures, such as through exempt offerings, or its oversight of certain investment advisers and funds?
15. In addition to climate-related disclosure, the staff is evaluating a range of disclosure issues under the heading of environmental, social, and governance, or ESG, matters. Should climate-related requirements be one component of a broader ESG disclosure framework? How should the Commission craft climate-related disclosure requirements that would complement a broader ESG disclosure standard? How do climate-related disclosure issues relate to the broader spectrum of ESG disclosure issues?