June 13, 2021
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?
Frazier Global Comment: I recommend the SEC adopt frameworks, standards, and metrics from the Value Reporting Foundation (IIRC SASB) as well as GRI and TCFD. These organizations have performed significant and rigorous evidentiary works to form best in class guidance and standards. Financial materiality tied to performance and value creation are essential.
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?
Frazier Global Comment: Recommend reviewing how those companies using SASB to report disclosure are doing so today. We do believe the SEC take a very careful approach to determining if and which standards are voluntary verse encouraged and no matter what, giving companies the needed time and flexibility to adopt any new rules around Climate disclosure and more broadly ESG disclosures.
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.)?
Frazier Global Comment: I believe here balance is in order. Industries and the communities in which they operate and serve are increasingly seeing value in ESG standards and metrics. Allowing industry to have voice is important and we believe the great majority should be able to set the bar by which they hold themselves accountable to. That said, invariably, the SEC and regulators should weight where more oversight or tighter standards need to be adopt in the interest of investor and stakeholder interests.
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?
Frazier Global Comment: We subscribe to the approach that aligns with industry specific standards that are cost effect, useful, financial material, and comparable on a peer to peer and industry basis. We think the SEC should adopt this approach as well.
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?
Frazier Global Comment: SASB, GRI for standards, IIRC, TCFD for frameworks.
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?
Frazier Global Comment: A similar approach to SEC's Self Regulatory Organization (SRO) model seems to make sense here.
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?
Frazier Global Comment: Our only comment here, is we believe ESG broadly should be the focus rather than just climate change.
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?
Frazier Global Comment: Allowances for geographic differences must be a core tenet. National, regional, even state to state can greatly influence a companies performance given demographics, traditions, and societal trends.
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?
Frazier Global Comment: We are already seeing a rise in 3rd party independent assurance of ESG/Climate related data and believe this is a proper trend given the need for validation and verification of reported data for investor and stakeholder information. We suggest the SEC support efforts to encourage 3rd party independent assurance that provides a reasonable level of validation of data, controls, etc.
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?
Frazier Global Comment: We think that comply or explain approach may make sense, again, this should be done on an industry specific basis. It should apply to all of ESG in order to help investors understand when and why certain information was deemed applicable or not but also to assist with comparability historically, with peers, and across industry.
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?
Frazier Global Comment: Interesting question. Frazier Global needs more time to consider this.
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?
Frazier Global Comment: Need more time to comment but we'd recommend extensive stakeholder feedback on any requirements here ensuring private companies have ample chance to weigh in and shape any information requests or requirements.
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?
Frazier Global Comment: Yes, Climate change while a big area should fall under ESG more broadly as the interconnectedness between the E, S, G can should be underestimated or taken in to account. We recommend using the SASB, TCFD, GRI framework/standards and extensive community engagement to aid this endeavor.
It goes without saying that timing and how the SEC goes about this endeavor is critical. The balance between a thriving growing economy and weight businesses down with additional burdensome requirements needs to be achieve here in the interests of the investors, stakeholders, and the greater society.
Thank you for the Opportunity to comment on the SEC's review of ESG and Climate disclosure requirements.
Sincerely
Frazier Global