Mar. 25, 2022
Greetings: The following are my comments on the SEC's proposed rule on "The Enhancement and Standardization of CLimate-Related Disclosures for Investors." This comment specifically pertains to the requirement that registrants disclose greenhouse gas emissions (GHG). Mandatory, standardized disclosure of GHG emissions comprises an important step toward providing investors, asset managers, and other market participants with quality information on firms’ environmental performance. Enhanced and standardized GHG emissions data will provide an upgrade over the current reporting done by firms. Currently, GHG emissions disclosure is either done on an ad hoc basis or is partially required where the limits to reporting requirements depend on geography and the magnitude of discharges from industrial point sources (see the rules of the GHG Reporting Program here). This reporting environment results in important gaps both from the perspective of missing data and emissions estimates that may lack credibility. Despite my position that standardized disclosure of GHGs is a positive development, I offer two crucial extensions to the Proposed Rule. My comments conclude with recent evidence on the impacts of disclosure on firm emission behavior. Recent research suggests that pollutants other than GHGs comprise a critical determinant of firms’ environmental performance. Thus, it is essential that firms not only report GHG emissions but also emissions of local air pollution. As the attached paper (Muller, 2022) demonstrates, globally, damages from exposure to local air pollution cause damages that are roughly two-times larger than those caused by GHGs. Because air pollution emissions are regulated in many parts of the world, copious emissions of such pollutants comprise risks to firms that investors should be made aware of. Second, the physical mass of GHG emissions is far larger than those of other pollutants. As a result, one cannot meaningfully weigh risks from emissions across pollution types on a ton-for-ton basis. Monetizing the damages from emissions facilitates aggregation across pollutant types. Well-established, peer-reviewed techniques for monetization of emissions exist (see Muller, 2022 attached). Such tools are commonly applied in federal Regulatory Impact Analyses (RIAs) by the U.S. Environmental Protection Agency. An example is found here. Monetization also facilitates a rigorous re-assessment of firm value inclusive of the social or external costs by analysts, asset managers, investors, and other market participants. Recent research (Yang et al., 2021, attached to this email) provides strong evidence that disclosure has a material impact on firm emissions. Specifically, the act of disclosure induces a statistically significant reduction in emissions. As such, emissions disclosure serves (at least) two clear purposes: providing critical information to investors, asset managers, and other market participants, and marginal emission reductions. I am willing to discuss my comments at greater length, should that be useful in further deliberations regarding the Proposed Rule. Nick Muller Lester and Judith Lave Professor of Economics, Engineering, and Public Policy Tepper School of Business Department of Engineering and Public Policy 4215 Tepper Quad 5000 Forbes Avenue Pittsburgh, PA 15213 Research Associate National Bureau of Economic ResearchAttached File #1:s71022-20121033-273212.pdf Attached File #2:s71022-20121034-273212.pdf