May. 31, 2022
Regarding the SEC proposed rule for Climate-Related Disclosures for Investors. Contrary to the hopes of the eager anticipators, the proposal will not bring consistency, comparability, and reliability to company climate disclosures. The proposal, however, will undermine the existing regulatory framework that for many decades has undergirded consistent, comparable, and reliable company disclosures. We cannot make such fundamental changes to our disclosure regime without harming investors, the economy, and this agency. For that reason, I cannot support the proposal. The proposal turns the disclosure regime on its head. Current SEC disclosure mandates are intended to provide investors with an accurate picture of the company’s present and prospective performance through managers’ own eyes. How are they thinking about the company? What opportunities and risks do the board and managers see? What are the material determinants of the company’s financial value? The proposal, by contrast, tells corporate managers how regulators, doing the bidding of an array of non-investor stakeholders, expect them to run their companies.[1] It identifies a set of risks and opportunities—some perhaps real, others clearly theoretical—that managers should be considering and even suggests specific ways to mitigate those risks. It forces investors to view companies through the eyes of a vocal set of stakeholders, for whom a company’s climate reputation is of equal or greater importance than a company’s financial performance. As you have already heard, the proposal covers a lot of territory. It establishes a disclosure framework based, in large part, on the Task Force on Climate-Related Financial Disclosures (“TCFD”) Framework and the Greenhouse Gas Protocol. It requires disclosure of: climate-related risks; climate-related effects on strategy, business model, and outlook; board and management oversight of climate-related issues; processes for identifying, assessing, and managing climate risks; plans for transition; financial statement metrics related to climate; greenhouse gas (“GHG”) emissions; and climate targets and goals. It establishes a safe harbor for Scope 3 disclosures and an attestation requirement for large companies’ Scope 1 and 2 disclosures. Some elements are missing, however, from this action-packed 534 pages: · A credible rationale for such a prescriptive framework when our existing disclosure requirements already capture material risks relating to climate change; · A materiality limitation; · A compelling explanation of how the proposal will generate comparable, consistent, and reliable disclosures; · An adequate statutory basis for the proposal; · A reasonable estimate of costs to companies; and · An honest reckoning with the consequences to investors, the economy, and this agency.