By Ramona du Houx
March 21, 2022
The Securities & Exchange Commission’s (SEC’s) proposed rule would enhance and standardize registrants’ climate-related disclosures for investors.
The enhancement and standardization of climate-related disclosures is overdue and urgently needed to help investors and American businesses compete effectively in an economy that needs to move faster than it is today towards decarbonization. Under today’s governance, businesses and investors working to decrease or eliminate their impact on the climate crisis do not have a level playing field when it comes to reporting and assessing climate-related topics and validating suitable investment choices. Investors and business owners, and consequently their impact on the climate crisis, will benefit from greater transparency and accountability proposed by the SEC.
“Investors and businesses need and deserve as complete a picture as possible of risks and opportunities, particularly as it relates to material issues that can span generations such as climate impact,” said Valerie Red-Horse Mohl, co-chair of ASBN and CFO of East Bay Community Foundation. “Our climate crisis is fused with racial and gender inequity and the wealth gap and demands transparency; all people and the environment will benefit from requiring it as part of our assessments.”
Under the SEC’s proposal, U.S. companies would be required to have some of their carbon emissions included in regulatory filings. Scopes 1 and 2 greenhouse gas (GHG) emissions will need to be included in annual filings, such as 10-Ks. Additionally, indirect emissions will need to be included from upstream and downstream activities (scope 3), if material, or if the company has set a GHG emissions target or goal that includes scope 3 emissions, in absolute terms, not including offsets, and in terms of intensity. This type of Information about specific emissions is not standardized, if it is currently disclosed at all, and the SEC’s proposal for standardization is also helpful to improve transparency and verification. ASBN believes all three scopes are key, particularly scope 3, because they are the biggest and broadest components of a company’s impact on climate change for most sectors of industry.
“Corporate Directors owe fiduciary duties of loyalty, care, good faith, confidentiality, prudence, and disclosure to their corporate shareholders. The duty of care requires directors to inform themselves prior to making a business decision. The SEC’s proposed rules to require companies to disclose climate related risks positions directors to fulfill their fiduciary duty of care as required under law given the vast amount of information that shows corporate transparency is beneficial to a corporation’s bottom line. The proposed rules are a good business decision that ASBN will advocate for on Capitol Hill and beyond,” said Maritza T. Adonis, VP, Policy, Advocacy, and Government Affairs for ASBN.
The proposed standards will also help to reduce greenwashing – the practice that companies of all types use in advertising, marketing, drafting ESG statements, or disclosing information will be required to pay extremely close attention to the language used in all of these types of documents, or run the risk of SEC scrutiny.
“We, along with many other investors, applaud the SEC for formally moving forward on expanding climate disclosures. Today’s proposed rule is a very strong step in the right direction. The depth of investor comments provided to the SEC last spring show the keen interest investors have in mandatory, standardized climate disclosures, and the need that we as investors have for this information,” said Elizabeth Levy, Head of ESG Strategy and Portfolio Manager at Trillium Asset Management, LLC. “While we welcome this proposed rule, to provide the most utility to investors, a complete set of disclosures needs to include scope 3 emissions disclosure particularly from the most impacted industries, including fossil fuels and finance, regardless of size and whether they consider scope 3 emissions material or not.”