The Commodity Futures Trading Commission led the way, thanks to Bob Litterman and Commissioner Rostrum Benham; the Federal Reserve undertook some quiet conversations, as is their style, but it was the SEC taking up the challenge on climate change disclosure that got widespread attention that US regulators are serious.
You know the world has changed – and for the better – when a proposed SEC rulemaking on Climate Change Disclosure is news in all the mainstream media and beyond (even our regional Chamber of Commerce took note of it).
It may seem like a small victory in the face of the huge challenge of the transition to the zero-carbon economy, but that level of visibility is wind in our sails. Now those of us in the investment community who have been advocating for this and working to make smart investment decisions for the transition, must step up and provide comments to make these proposed rules as effective as possible..
Effective means decision-useful and practical to implement. We have significantly more information and better tools than when the 2010 guidelines on climate change disclosure were issued. Deploying those – and advancing their development, because there’s still a long way to go – is essential.
There’s a lot to unpack in this proposal (510 pages…). The three-page fact sheet is a great place to start, but to be able to comment helpfully, you’ll need to dig deeper. (See Suggestions & Resources below.)
As first impressions, two items struck me:
- The requirement to quantify material physical transition risks in the consolidated financial statements will finally require firms to explicitly articulate where and how these risks will affect their business, enabling analysts to better assess and challenge a firm’s strategy and execution.
- The requirement to disclose material scope 3 emissions if a firm has a GHG reduction target and has publicly set climate-related targets or goals – Reporting Scope 3 emissions is a high priority and very difficult to do. This should generate a very high volume of comments, and I suspect the Goldilocks response (just right) will be in a distinct minority. That said, as written, the many firms that have made “net zero” commitments will have a choice of doing the hard work on scope 3 or walking back those commitments. A blow against greenwashing. It will also level the playing field for the leaders who are already tackling this difficult work.
The comment period for the proposed rules will last until at least May 20th. Have at it!
Suggestions and Resources
- Parsing the proposal – after reading the fact sheet, if you have a sense of which provisions you are most interested in exploring – and perhaps commenting on – head to the discussion section of the full proposal (begins on page 49) and look for the detailed discussion of that provision.
- Search the document for “Request for Comment”, to scan through the specific questions the SEC is looking for comment on in each section.
- The webcast of yesterday’s SEC open meeting will be a compact and authoritative resource (it’s about an hour long). It’s not yet available, but should be within a week or so – check the SEC’s Webcast page for availability.
- Professional organizations and others will likely run informational sessions. Our CFA Boston Sustainable Investing initiative is working with the Ceres Accelerator for Sustainable Capital Markets to create a session specifically targeting the CFA charterholder audience and focused on areas of greatest impact for comments. Details to come.