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Ed. note: This is part 4 of a series of articles on our experiences using AI platform chatGPT to write and answer questions about ESG. The first installment focused on seeing if the AI app would copy my writing style in producing a blog article. For the second installment, I asked the bot to write a corporate ESG report. Yesterday, I wrote about how chatGPT managed a regulatory inquiry on EPA/state environmental mandates.

Yesterday was chatGPT’s “EPA Day” in our series. Today – as I threatened – we’ll have a look at what chatGPT has to say about the SEC climate disclosure proposal. In the first installment of this series, I mentioned that the bot isn’t supposed to know about anything after 2021 because it doesn’t connect to Google. Turns out that isn’t completely accurate.

SEC’s Climate Disclosure Proposal

I attempted to trick the bot by commanding it to summarize the SEC climate disclosure proposal from last March. Ignoring the fact that I prompted it to continue and ultimately produce this in four parts, here is chatGPT’s answer:

“The SEC Climate Disclosure Proposal is a set of guidelines put forward by the US Securities and Exchange Commission (SEC) that aims to increase transparency and disclosure around the financial risks and opportunities associated with climate change for public companies. The proposal includes a number of recommendations for companies to disclose information about their greenhouse gas emissions, climate change risks and impacts, and climate-related governance and metrics. The goal of the proposal is to help investors and other stakeholders better understand and assess the potential financial impacts of climate change on companies.

The SEC Climate Disclosure Proposal is still in the proposal stage and has not been officially adopted yet, but if it is adopted, it would require companies to disclose information in their annual financial filings about their greenhouse gas emissions, climate change risks and impacts, and climate-related governance and metrics. The proposal also includes recommendations for companies to disclose information about their resilience to climate change and potential opportunities for transitioning to a low-carbon economy. Additionally, the proposal encourages the use of standardized reporting frameworks, such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The proposal, if adopted, would be aimed to help investors and other stakeholders better understand and assess the potential financial impacts of climate change on companies, and also support companies to take effective climate change risk management measures.

The SEC Climate Disclosure Proposal has been met with mixed reactions, with some praising it for increasing transparency and helping investors better understand the financial risks and opportunities associated with climate change, while others have criticized it for not going far enough in mandating specific disclosures or for not being legally binding. Some stakeholders have also raised concerns about the potential costs and administrative burdens that the proposal could impose on companies.

The SEC is currently in the process of soliciting feedback on the proposal and will consider this feedback before making a final decision on whether or not to adopt the guidelines. The SEC has not announced a specific timeline for making a final decision, but if it’s adopted it would be a notable step forward in the effort to better understand and manage the financial risks and opportunities of climate change.

The SEC Climate Disclosure Proposal, if adopted, would be an important step in increasing the transparency and accountability of companies with respect to climate-related risks and opportunities. It would also be in line with the growing trend of increased climate-related disclosure and reporting globally, including the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

In addition, the proposal aligns with the growing investor demand for more detailed and consistent information on the environmental, social and governance (ESG) risks and opportunities of companies. This is becoming increasingly important as more investors are incorporating ESG factors into their investment decisions.

It’s worth noting that the adoption of the SEC Climate Disclosure Proposal would also be in line with the current administration’s priority to address climate change and its impact on the economy and society. This proposal is an important step in the right direction to move towards a more sustainable and resilient economy.”

Chalk one up for the bot here – this exceeded my expectations. It isn’t supposed to know about matters more recent than 2021, yet it provided a reasonable summary of the content, referenced TCFD as the proposal’s basis, knew the proposal is still a proposal and even acknowledged “mixed reactions” to the proposal. Could it be more detailed? Sure, but I also didn’t specifically demand more detail so that has to be considered. I also have to give it points for avoiding jargon.

My Conclusion

I have a few thoughts about using it as a regulatory information proxy.

  • First off, it is critical to realize that chatGPT (and really any search engine) only responds to the question as you ask it. You need to be very thoughtful in crafting your commands to chatGPT. It may take a few tries before you get something that appears satisfactory.
  • I say “appears” because human intervention and subject matter expertise are still required to identify if meaningful gaps/inconsistencies exist in the response. We are not at a point of being able to wholly rely on the bot for comprehensive regulatory information – at least for US environmental requirements.
  • The more it is prompted to write, the more repetitive the wording in the response – which will become problematic as you prompt it for increasing detail on regulations.
  • It is unclear how current (or aged) its data is. It struggled for clarity and detail on a 30 year old EPA regulation but produced a surprising result on SEC’s climate disclosure proposal that is only 10 months old.

Finally, as with many information resources, I look at it through the eyes of an auditor and former legal assistant. I wouldn’t rely on chatGPT’s responses for much more than a guide for where to find original source information/regulations. Even so, my results show the bot is inconsistent in being responsive to that function for the time being.

Humans are still very necessary.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile