Comment Letter- SEC File No. S7-10-22- The Enhancement and Standardization of Climate-Related Disclosures for Investors

52 Pages Posted: 30 Jun 2022

See all articles by Alan L. Beller

Alan L. Beller

Cleary Gottlieb Steen & Hamilton LLP

Daryl Brewster

Independent

Robert G. Eccles

University of Oxford - Said Business School

David A. Katz

Wachtell, Lipton, Rosen & Katz

Carmen X. W. Lu

Wachtell, Lipton, Rosen & Katz

Leo E. Strine, Jr.

Wachtell, Lipton, Rosen & Katz; University of Pennsylvania Carey Law School; Harvard Law School Forum on Corporate Governance

Date Written: June 16, 2022

Abstract

In this comment letter to the Securities and Exchange Commission, we underscore that the SEC has established statutory authority authorizing its ability to require disclosures regarding climate risks that face companies, and that there is overwhelming evidence that such information is important to investors. We start with the position that if the choice were between having the climate rule as originally proposed or no rule at all, the need for more reliable, comparable reporting on climate risks is so important that we would support adoption of the rule.

But because the Commission desires constructive comments precisely so it can improve the proposed rule, we propose these specific changes that, in our view, will increase the benefits of the climate disclosure regime and lower its cost:

• The Commission should recognize the power and value of high-quality Scope 1 and 2 reporting, and not require Scope 3 reporting or the reporting of innovative, voluntary efforts like internal carbon pricing, scenario analyses or transition planning, unless a company has chosen to set public targets for Scope 3 or Scope 3 emissions are required and reportable under existing disclosure requirements. Instead, voluntary disclosure of Scope 3 emissions or other innovative techniques should be encouraged by way of safe harbor protection;

• To improve the utility and efficiency of the Commission’s Scope 1 and 2 reporting requirements, the rule should require reporting in conformity with the GHG Protocol, with as little variation as is necessary to allow for investors to compare issuer emissions on an entity-wide basis;

• To further enhance the effectiveness of Scope 1 and 2 reporting, the proposed rule should have strong provisions requiring issuers that outsource material components of their operations, such as manufacturing or call centers, or through franchises, whose impact would be reportable under Scope 1 and 2 if conducted directly, to report the climate impact of those operations within their Scope 1 and 2 disclosures;

• To further increase the coherence of narrative requirements with emerging private sector and international standards, and with principles-based SEC reporting like MD&A, the requirements for narrative disclosure should be streamlined, the use of words like “any” and “all” or of de minimis quantitative thresholds like one percent should be eliminated or replaced with a more reasonable threshold of five or ten percent, and all narrative and quantitative disclosure beyond Scope 1 and 2 emissions should be subject to a materiality judgment by the issuer about the information’s impact on the company’s operations and prospects consistent with that used in the Commission’s MD&A reporting standard;

• To move in that direction, by way of non-exclusive example, proposed Items 1501-1503 should be consolidated into one more concise item that is less prescriptive, less redundant and more focused on materiality, and that should be part of the MD&A of the company;

• Attestation of Scope 1 and 2 emissions should be phased in rather than be required immediately by all large accelerated filers and accelerated filers. Under this phase-in approach, for the first three years of implementation attestation should first be required for the largest public companies with market capitalization over $25 billion, and then be required by remaining large cap companies with market value above $10 billion. Only after this initial five-year phase-in period should attestation be required by smaller public companies;

• Likewise, to the extent the Commission insists on requiring the disclosure of Scope 3 emissions, or of other innovative techniques such as internal carbon pricing, transition plans, or other climate-related matters, at the very least those requirements should be phased in on the same basis as we urge for attestation; and

• Enforcement of the rule should be limited to the government itself and there should be no private right of action. Emphasis in the early years of implementation should be on education and facilitation, not enforcement. And, in the context of government enforcement, stronger safe harbor protections along the lines we advocate should apply.

Keywords: Climate-Related Disclosure, SEC, Disclosure, Securities Disclosure Regime, SEC Rulemaking Authority, ESG, Sustainability Frameworks, Climate Change, Investors, Voluntary Disclosure, Mandatory Disclosure, Scope 1 Reporting, Scope 2 Reporting, Scope 3 Reporting, Greenhouse Gas Emission

Suggested Citation

Beller, Alan L. and Brewster, Daryl and Eccles, Robert G. and Katz, David A. and Lu, Carmen X. W. and Strine, Jr., Leo E., Comment Letter- SEC File No. S7-10-22- The Enhancement and Standardization of Climate-Related Disclosures for Investors (June 16, 2022). Available at SSRN: https://ssrn.com/abstract=4139637 or http://dx.doi.org/10.2139/ssrn.4139637

Alan L. Beller

Cleary Gottlieb Steen & Hamilton LLP ( email )

One Liberty Plaza
New York, NY 10006
United States

Daryl Brewster

Independent ( email )

Robert G. Eccles

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

David A. Katz

Wachtell, Lipton, Rosen & Katz ( email )

51 West 52nd Street
New York, NY 10019
United States

Carmen X. W. Lu

Wachtell, Lipton, Rosen & Katz ( email )

51 West 52nd Street
New York, NY 10019
United States

Leo E. Strine, Jr. (Contact Author)

Wachtell, Lipton, Rosen & Katz ( email )

51 W 52nd St
New York, NY 10019
United States
212-403-1178 (Phone)

University of Pennsylvania Carey Law School ( email )

Philadelphia, PA
United States

Harvard Law School Forum on Corporate Governance ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

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