On June 17, the Society submitted this comment letter in response to the SEC’s request for comments on its climate disclosure proposal issued in March (reported on here).
In addition to addressing the threshold issues of scope of authority, materiality, and costs to implement the proposed rule, as detailed in the letter, the Society recommended:
GHG emissions
- Disclosure of Scope 1 and 2 emissions be required only if material to the company and subject to de minimis exceptions
- Disclosure of Scope 3 emissions on a voluntary basis only; provided, however, that if required to be disclosed notwithstanding our significant concerns, disclosure should be subject to the longstanding materiality standard and the disclosure requirements should be clarified
- Disclosure of GHG and climate-related target/goal setting be required only if material and publicly announced. Furthermore, SRCs should be exempted as to any Scope 3 disclosure regardless of target/goal setting.
- Disaggregation of GHG emissions be required only if and to the extent an issuer already publicly discloses such aggregated data elsewhere and if material.
- Companies be permitted to report their emissions data later in the year (when most companies’ data is available, e.g., 180 days after FYE) on a specially designated form to be furnished with the SEC. Alternatively, companies should be permitted to report the data once available and verified on the next appropriate Form 10-Q or Form 10-K.
- The GHG emissions-related methodologies of the final rule align with those of the GHG Protocol
Governance disclosures
- In lieu of the proposal, which calls for overly granular disclosure that would regulate company behavior (in addition to disclosure), the SEC update its 2010 climate disclosure guidance to clarify that the current Reg. S-K disclosure requirements apply to climate-related issues and with a focus on industry-specific disclosure in recognition of the fact that not all companies are similarly situated when it comes to climate risk
- Corp Fin continue to use its sample comment letter to evaluate companies’ compliance with the securities laws
- If the SEC determines to adopt additional disclosure requirements notwithstanding our significant concerns, it amend Reg. S-K to require categories of disclosure (g., board climate risk oversight), rather than adopt the proposed detailed, prescriptive requirements
- Companies be permitted to provide board and management disclosures in the proxy statement to avoid duplicative or isolated disclosure
Strategy and risk management disclosure
- Disclosure of value chain-related climate risks be limited to those material risks related to the registrant’s financial statements and operations
- Elimination of the proposed zip code requirement
- In recognition of the fact that analytical tools such as climate scenario analyses are competitively sensitive, elimination of proposed disclosure requirements; provided, however, if the SEC determines to require detailed disclosure notwithstanding our significant concerns, the rule allow companies to submit a streamlined form of confidential treatment request to the SEC with respect to such disclosures if the companies believe that the information may be competitively sensitive and provide a safe harbor for such disclosure
Regulation S-X
- Elimination of the proposed requirement to include climate-related metrics in the audited financial statements and, in lieu thereof, an amendment to Item 303(b) of Reg. S-K that would require companies to consider material climate-related impacts when discussing their results of operations, capital resources, and liquidity
- If the final rule requires climate-related metrics to be included in financial statements notwithstanding our significant concerns, the SEC eliminate the proposed 1% threshold (which should be replaced with a principles-based materiality threshold), absolute value concept, consideration of “lost revenue” and cost savings from any financial calculations, and climate-related metrics for historical periods
Assurance
- Elimination of the proposed attestation requirement
Other considerations
- Safe harbors be clarified and broadened to cover all of the proposed new climate disclosures and the proposed “climate expert director” requirement
- Compliance be layered and phased-in to a much greater degree than proposed (see example phase-in schedule on page 80 of the Society letter)
- Additional phase-in accommodations be made for acquired businesses and newly public companies
- Foreign private issuers and debt-only issuers be exempt from the final rule
The Society thanks the extraordinary and unparalleled engagement of the approximately 145-member drafting and working group, who tirelessly provided and reviewed, and suggested edits to, draft sections, paragraphs, sentences, and data; shared their companies’ and clients’ perspectives; and responded to our numerous requests for information, clarification, and benchmarking to help inform this letter.
Additional comment letters are here.