June 12, 2021
Saturday, June 12, 2021
Subject: Issue Robust Rules on Corporate Climate Disclosures
Dear Securities and Exchange Commission Chair Gensler SEC Commissioners,
The Securities and Exchange Commission (SEC) should require that corporate managers be more transparent with shareholders regarding their long-term plans. When I think about where to invest my money, I want to know which companies are serious about a just, green future. In order for me to 'vote with my wallet,' I need corporations to be honest and accountable about what theyre doing to address climate change. It is the SEC's job to keep corporations from hiding their contribution to the climate crisis and environmental destruction or from lying to the public about their role. Corporations also need to be honest about what theyre doing to stop climate change and how they are planning for a future affected by an accelerating climate crisis.
Therefore, as an investor and consumer, I appreciate the SEC's Request for Information on climate change disclosures since current corporate disclosures are not adequate to inform investors about known material risks, uncertainties, impacts, and opportunities, and there is a lack of consistency between corporations in the disclosures they currently provide. There is an urgent need for mandatory climate and environmental, social, and governance (ESG) disclosures.
Climate change poses an increasing risk to the environment, communities, economy, and the financial system, including risks from climate-related disasters, increasing heatwaves, and rising seas, as well as risks from failing to adopt technologies to mitigate climate risks and adapt to them.
Climate change poses a very real risk to corporate bottom lines and investor returns. The cost of companies complying with SEC regulations regarding climate disclosures would be far less than the cost to companies and their stakeholders of failing to address the risks posed by climate change in a timely manner, and with full disclosure.
The current gaps in corporate disclosure put investors and other stakeholders at a disadvantage, with each corporation largely determining what climate risks and scenarios to report and different companies using different methodologies to provide these disclosures. As a result, it is vital for you to require climate-related disclosures in order to meet the SEC's mandate to protect investors ensure fair, orderly, and efficient markets and facilitate capital formation. Rulemaking from the SEC requiring standardized corporate disclosure is needed to fill this gap.
In particular, the fossil fuel industry and sectors that rely on agro-commodities, including the agribusiness and consumer goods sectors, pose risks to the financial system that must be disclosed by companies whose direct operations and supply chains are involved in these sectors as well the financial institutions that enable them.
Too many corporations seek to greenwash or tout meaningless climate commitments to burnish their public image and try to attract climate-conscious investors, like me, even while making risky business decisions that deepen the climate crisis. The SEC must adhere to its mission and ensure that American corporations disclose the full impact of their actions on our climate. Corporations also need to tell the truth about how they are planning for a future affected by an accelerating climate emergency, including how environmental regulations will impact their holdings and business plans. These disclosures need to be mandatory, and the SEC must ensure that these disclosures are comparable, consistent, relevant, and reliable to be useful for making investment decisions.
I believe that climate change disclosure rules from the SEC should, at a minimum, include the following elements:
1) Be mandatory and standardized in a way that makes them comparable across firms and sectors.
2) Be easily accessible, transparent, clear, and decision-useful to all investors across different levels of sophistication.
3) Be based on the Task Force on Climate-related Financial Disclosures (TCFD) which has been endorsed by hundreds of companies and investors globally.
4) Industry specific metrics: SEC rulemaking should include industry specific metrics, because material climate risks manifest in different ways by industry. Identifying such industry specific metrics would also allow for comparable disclosures.
5) Governance and strategy disclosure: Disclosure rules should provide insights into companies climate risk exposure, strategies, and scenario planning.
6) Both qualitative disclosures, such as the information currently reported under the voluntary Task Force for Climate-Related Financial Disclosures, as well as specific line-item, quantitative disclosures.
7) Emissions disclosure: Disclosure rules should include Scope 1, 2 and 3 greenhouse gas emissions linked to their own operations and their tier one suppliers, which are needed to assess the full range of climate change risks facing companies.
8) Disclosure rules should include quantitative and qualitative data used in scenario analysis in regards to scope 3 emissions and specifically direct and supply chain emissions from land use, land use change, and forestry. This data should include detailed data on company land banks, land and forest management practices, sustainability and governance policies, and deforestation-reduction targets.
9) Disclosures should cover both physical risks and transition risks that affect enterprise value, but also the impacts that issuers have on society, the natural environment, the global financial system, and investors as a whole, including risks associated with human rights and the rights of Indigenous Peoples and other vulnerable and marginalized populations.
10) Impacts on frontline communities: Disclosures should incorporate the impacts on frontline communities of companies' climate emissions, including air and water pollution, health, property damage, financial, and other harms, and steps companies are taking to address these impacts.
11) Inclusion in financial filings: Material climate disclosures, including discussion on risk exposure and business opportunities, impacts on strategy and emissions reporting and management, should be included in all appropriate SEC filings.
12) Enforcement: The SEC should create penalties for material errors and emissions in corporate climate disclosures and engage in enforcement actions to ensure company compliance.
13) Regular updates: Climate change impacts, scientific consensus around climate impacts and capital market responses to climate risks are rapidly evolving. SEC rules should be updated regularly in response to these developments, and they should include the development or adoption of new metrics.
14) Disclosures should be published in annual and quarterly SEC filings, and to the extent possible, should be included in the audited financial statements.
15) Managers should also be expected to disclose to shareholders if their company is playing in politics. A company could face significant risk if it says one thing about its climate commitments in public, but in the background, it lobbies to upend efforts to address the climate crisis.
16) Disclosures should be in a machine-readable format to allow academics and other stakeholders to easily use this information and compare, analyze, and identify discrepancies which could be the basis for shareholder pressure and enforcement action.
Beyond climate-related issues, companies should also have to be clear about other material issues like whether their hiring practices genuinely aim to increase diversity and representation on their board, in what countries they pay taxes, how they treat their workforce, and what their human rights impacts are.
Requiring that this information be disclosed matters to me because it will help me direct my investments towards corporations that are legitimately working to meet the climate challenge, help ensure I have the information I need to exercise an informed voice, and help me and my community to protect investments and retirement savings from the damage of the climate crisis.
The SEC's mission is to protect investors and ensure a level playing field for how companies can compete. Today, investors rely not only on the short-term financial performance of companies, but look at how those companies are positioning themselves for the future. The lack of enforceable rules and standards contributes to an unreliable information environment. Accurate information about both direct and indirect greenhouse gas emissions, corporate commitments to meet the climate challenge, and the alignment of corporate investments with those commitments is vital to me and my decisions.
As an investor and consumer, I seek to make investment decisions both on financial performance and how my investments align with addressing the climate crisis. Climate change is not just an environmental issue, but one of economic justice, wealth distribution, equity and human rights. I want my investments to contribute to a strong, climate-resilient economic and financial system that protects vulnerable communities. Without adequate information, I cannot direct my investments in this way. To make matters worse, I cannot adequately protect my investments from the full range of climate-related risks that companies cause and are susceptible to. Making companies disclose information about these issues would help me make better investment decisions.
Shareholders and the public have a right to be informed of these sorts of environmental, social, and governance (ESG) factors, and I call upon the SEC to require clear, standardized, and trustworthy information on these topics from all companies. I appreciate the Commission's consideration of my views and urge the SEC to act urgently in response to the growing threats of the climate crisis to markets and the economy.
Thank you for your consideration of my comments. Please do NOT add my name to your mailing list. I will learn about future developments on this issue from other sources.
Sincerely,
Christopher Lish
San Rafael, CA