Ed. note: This is the final week for our intern Alex Noga. Alex conducted the following research and analysis, and wrote his conclusions in this article. Thank you Alex and good luck in your continuing studies.
The SEC’s March 15 request for public input on climate-related disclosures attracted over 6000 comments from trade groups, public companies, big asset managers, individual investors, and many others.
We’ve blogged about comments from a few major players on TheCorporateCounsel.net, but we also selected and reviewed 20 submissions from large public companies and asset managers to get a sense of the themes. Across this small sample, commenters generally support the SEC mandating climate disclosures – though their recommendations vary.
Here’s what they said about some of the most hotly debated issues:
Most of our sample agree that currently recognized frameworks and standards – such as those established by the Task Force on Climate-Related Financial Disclosure (TCFD) and the Sustainability Accounting Standards Board (SASB, now called the Value Reporting Foundation) – should be leveraged wherever possible for new climate disclosures to be meaningful and comparable. The commenters felt that these existing reporting standards provide a solid foundation for developing SEC climate disclosure requirements. However, recommendations differ with regards to whether a uniform climate-related disclosure framework should be established or if the Commission should deploy a principles-based approach that varies from sector to sector and from company to company.
Vanguard advocates for a single global standard that will harmonize climate disclosures internationally using the existing voluntary frameworks because “global standards are more useful than disparate regulations.” Others, such as Microsoft, believe climate disclosure rules should be “principles-based, rooted in established concepts of materiality, and adaptable over time.” Such an approach would utilize company-specific materiality determinations and reduce the volume of information that could be considered irrelevant or immaterial. Microsoft notes that it will take time for a fully realized standard to develop given the lack of high-quality climate information, and they recommend that disclosures be adaptable to market and scientific developments in the future.
Many companies in our sample recommend that the SEC be flexible in terms of the timing of required climate disclosures. Bank of America advocates for a reasonable amount of time between the release of any final rule on new climate-related disclosure requirements and the compliance date given the challenges of collecting and analyzing new forms of climate-related data without a true measure of standardization – “high quality climate-related disclosure should be based on timely information, and timely information is not consistently available at this time.” Due to continued market and regulatory developments and a lack of uniformity, BlackRock agrees that the SEC should pair the climate disclosure mandate with a phased approach that achieves full implementation over the span of several years.
Furnished or Filed? And Where?
There is also much debate as to where climate disclosures should be reported, with many companies in our review recommending that they be furnished rather than filed in current reports. FedEx believes that the SEC’s goals are best accomplished by furnishing climate disclosures in separate reports rather than filing them in annual or quarterly reports that are dictated by federal securities laws because climate information is not available on the same time frame as financial information and related disclosures. United Airlines has a similar recommendation, stating that including climate disclosures in the Form 10-K or annual meeting proxy statement adds “unnecessary burdens on the disclosure process and would not meaningfully enhance the quality of disclosures provided.” A joint comment letter that includes tech giants such as Alphabet, Amazon and Facebook agrees that climate disclosures should be furnished via a separate climate report to the SEC. Walmart, on the other hand, supports a phased approach that would initially report climate disclosures outside of regular filings under federal securities laws for a number of years because its relevance and materiality is not universal or well-established, but foresees a time in which climate disclosures will be a part of regular filings.
In terms of the information that is reported in climate disclosures, despite the push for a “principles-based” standard, most companies in our review also agree that disclosures should be quantitative rather than qualitative. Chevron recommends that Scope 1, 2, and 3 greenhouse gas emissions be included in climate disclosures from the beginning while recognizing that standardization of Scope 2 and 3 evaluations is still an ongoing process. There is more debate over the inclusion of Scope 3 emissions, largely because of ambiguity surrounding its measurement. Apple argues that all carbon emissions should be reported and emphasizes the need for Scope 3 emissions, as these “represent the overwhelming majority of most companies’ carbon footprint and are therefore critical to include.”
There is also some dispute as to whether climate disclosures should focus only on climate-related issues or include ESG and other sustainability factors as part of a broader disclosure framework. Dell recommends that the SEC focuses on climate-related factors first, followed by additional sustainability and social issues as climate disclosures develop, because climate change is the most pressing global issue to address.
Many in our review agree that the SEC should include safe harbor provisions in their disclosure rules. As ConocoPhillips comments, safe harbors would “protect reporting companies and management from liability for making good-faith projections and forecasts,” which would be “consistent with how forward-looking financial information is treated today.” They also agree that internal controls should be applied to climate disclosures, but most do not advocate for immediate implementation. ConocoPhillips recommends that assurance services be required only “in the first instance” of disclosure rules, as there are already assurance frameworks in use for climate-related data.
The SEC intends to issue a notice of proposed rulemaking on climate disclosures on or before October 2021.
Comment letters in our sample
- Bank of America
- Joint: Alphabet/Amazon/Autodesk/eBay/Facebook/Intel/Salesforce
- State Street