So, what are  the GHG emissions for a mega roll of Charmin Ultra Soft toilet paper?  If you guessed 771 grams, you'd be right...or, at least, according to this article in the WSJ, you'd be consistent with the calculations of its carbon footprint made by the Natural Resources Defense Council.  By comparison, a liter of Coke emits 346 grams from farm to supermarket, as calculated by the company. That's the kind of calculation that many public companies may all need to be doing in a few years, depending on the requirements of the SEC's expected rulemaking on climate.  Of course, many companies are already doing those calculations and including them in their sustainability reports.  But they generally have discretion in deciding what to include. A mandate from the SEC could be something else entirely. The WSJ calls it "the biggest potential expansion in corporate disclosure since the creation of the Depression-era rules over financial disclosures that underpin modern corporate statements. Already it has kicked off a confusing melee as companies, regulators and environmentalists argue over the proper way to account for carbon."


In remarks in July, SEC Chair Gary Gensler said that investors were demanding disclosure about climate risk, and that it was now time for the SEC to "take the baton." To that end, Gensler has asked the SEC staff to "develop a mandatory climate risk disclosure rule proposal for the Commission's consideration by the end of the year." Almost two-thirds of companies in the Russell 1000 Index, including 90% of the 500 largest companies in that index, he observed, "published sustainability reports in 2019 using various third-party standards." However, they are not necessarily as consistent, comparable or decision-useful as investors would like. Of the 550 (unique) comment letters that were submitted in response to the request for public comment announced by then-Acting SEC Chair Allison Herren Lee (see this PubCo post), three out of four responses, Gensler noted, supported mandatory climate disclosure rules. And it's not just investors—a number of companies also indicated a desire for more standardized, consistent rules as a way to address the volume of varying and time-consuming requests for climate data submitted by investors and rating agencies.

In his remarks, Gensler outlined some of the concepts that are being considered for inclusion in that proposal. In addition to qualitative measures, specific quantitative measures being discussed were "metrics related to greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals." One specific question up for consideration is disclosure about Scope 1, 2 and 3 greenhouse gas emissions. (The EPA defines Scope 3 emissions as emissions that "are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain.") While some companies provide information on a voluntary basis about Scope 1 and Scope 2 GHG emissions, many investors are also looking for Scope 3 information. Gensler has asked the staff to "make recommendations about how companies might disclose their Scope 1 and Scope 2 emissions, along with whether to disclose Scope 3 emissions—and if so, how and under what circumstances." In addition, Gensler is considering the inclusion of industry-specific metrics, such as for banking, insurance or transportation. (See this PubCo post.)

The WSJ  reports that the Sustainability Accounting Standards Board (SASB) believes that "climate risk is likely to significantly affect 68 out of 77 of the industry categories it counts, equating to 89% of the market value of S&P Global 1200 companies, or roughly $45.2 trillion." Better disclosure about risks arising out of climate change is likely to be included in the rulemaking—perhaps, as Gensler signaled, by requiring "scenario analyses" about how the company would adapt to physical risks and transition risks.  According to the WSJ, these can "range from physical ones such as effects from extreme weather to financial risks such as if a fossil-fuel asset like a coal mine loses value. The SEC and other regulators say climate change poses specific risks to companies that investors should be told about. Among them is the risk that companies producing a lot of greenhouse gases could be avoided by some lenders, insurers or investors, either because those parties see the companies as harming the environment or because they view the companies' businesses as vulnerable. A scientific panel working under the auspices of the United Nations stated in a report [last week] that effects of a warming climate are unequivocally driven by greenhouse-gas emissions from human activity." The article also reports that SEC officials have "said they are considering creating a new standards-setter for ESG disclosures, along the lines of the Financial Accounting Standards Board, a body that would have expertise in matters like climate science, alternative energy and environmental risks."


An article in IR Magazine reports on a survey of public companies' attitudes toward ESG disclosure conducted by the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.  According to the article, half of the respondents considered third-party ESG standards difficult to understand.  Respondents also said that third-party frameworks elicit "immaterial information and lack transparency." Indeed, even the term "ESG" was viewed by 61% of respondents as "subjective." Only 9% responded that "standard setters provide consistent, easy-to-understand metrics."  In addition, 41% responded that they do not apply disclosure frameworks of any standard-setting body in their climate disclosures for SEC filings. Among those that do, 44% reported using SASB, 31% using Global Reporting Initiative (GRI), 29% using Task Force on Climate-Related Financial Disclosures (TCFD) and 24% using the Carbon Disclosure Project (CDP).  Some industries have developed their own sustainability reporting templates.  According to the survey, only 28% of respondents currently provide any third-party assurance.

With regard to whether the SEC should adopt uniform standards for climate disclosure, the article reports, the views of responding companies were evenly split at 36% in favor and 36% opposing.  Among respondents, 43% said that the SEC should adopt a comply-or-explain approach to climate disclosure, with 33% opposed.  In addition, with regard to who should develop the disclosure standards, 27% advocated that the SEC designate an existing standard-setter, 21% favored the designation of multiple standard setters and 24% thought the responsibility should fall solely on the SEC to develop and maintain standards directly. The survey also showed that 84% of respondents wanted the SEC's disclosure rules on climate to "reflect the differences between the different industries."

According to the article, companies reported that, in the decade or so since the SEC issued its climate guidance in 2010 (see this PubCo post), 59% have increased the amount of their climate reporting; only 1% say that they are disclosing less.  In addition, 63% of responding companies report that they are engaging with their shareholders on climate risk, and 46% say that, as a result, they have increased the level of climate reporting detail and 15% say they have increased their climate reporting frequency.

As noted above, many companies already provide volumes of environmental data in response to requests from investors and others, and that information is often used by rating firms to give companies ESG grades used by investors.  According to the WSJ, however, those ratings are "inconsistent and incomplete." The WSJ  analyzed ESG ratings from three ratings agencies for 1,469 companies and found that 942 companies were graded differently by different raters: "Nearly a third of the companies were deemed ESG leaders by one or more rating firms, but labeled ESG laggards by one or another rater. Credit ratings, by contrast, are broadly consistent."  Only about a third of the companies had consistent scores.  Why? Because the agencies use different methodologies and attribute different weights to issues, such as environmental or social.

And, although many companies issue sustainability reports, there is enormous variation in the quality and breadth of reporting by companies—not to mention some greenwashing and virtue-signaling.  Not all companies provide climate-related quantitative data, such as GHG emissions, and even that is rarely audited. Some companies disclose emissions for one or two products, but not the whole company, or based on general data, not specific to the company. For example, the WSJ  reports, "the Natural Resources Defense Council used a calculator from a green advocacy group called the Environmental Paper Network....A spokesman for the Environmental Paper Network said its calculator, which uses industry averages, is 'a science-based, trusted, independent tool.'" Similarly, according to the WSJ, companies vary widely in how they calculate emissions from employee business travel; some consider air travel only; some include air and rail travel; some also include car travel.

Commentators cited in the article contend that companies "would take climate disclosure more seriously, and it would be more accurate, if it were mandated and checked by an outsider. 'If you really want data that's reliable, having it being something that's auditable strikes me as being a basic requirement,'" the commentator remarked. A WSJ  analysis of climate reporting by "the 50 largest companies in the S&P 500 found most used an outside auditor for some of the data they voluntarily reported, but verification was significantly less thorough than for financial statements."


In remarks this year to the Center for American Progress, then-Acting SEC Chair Allison Herren Lee indicated that one topic that was under consideration was whether there should be a requirement for verification of climate and ESG disclosures, including potentially auditor attestation of sustainability reporting.  In her view, symmetry around ESG and financial reporting, such as through attestation, should be the "ultimate goal."  (See this PubCo post.)  The SEC's request for public comment on climate disclosure included among the questions how climate disclosures should be enforced or assessed and, if there were an audit or assurance process or requirement, what organization(s) should perform such tasks? SEC Commissioner Elad Roisman, on the other hand, contends that companies may not be in a position to make some types of climate disclosure, such as Scope 3 GHG emissions, with much precision.  As a result, he expressed concern about requiring verification through an audit or an attestation. (See this PubCo post.)

Devising climate disclosure requirements that would be consistent, comparable and reliable for a wide range of industries presents and also "hold up over time in a new and rapidly changing area" presents an enormous challenge. According to former SEC Commissioner Robert Jackson, "'[i]t's a monumental task. It's unlikely the first cut at this will be perfect."

The challenge too is to craft rules that would survive the political and legal opposition that has emerged.  The WSJ  reports that some Republicans argue that "it isn't the SEC's job to mandate nonfinancial disclosures." In addition, the article continues, some industry organizations "told the SEC it didn't have legal authority to compel disclosures and impose its value judgments." One Republican state attorney general "wrote that 'West Virginia will not permit the unconstitutional politicization of the Securities and Exchange Commission. If you choose to pursue this course we will defeat it in court.' The legal threat is unlikely to deter the agency, according to Harvey Pitt, a former SEC chairman. 'Whether or not the litigation will succeed will depend on how aggressive the SEC's rule-making turns out to be,' he said."


During the debate preceding the vote on Gensler's nomination, Senator Pat Toomey, who ultimately voted against confirmation, expressed concern that Gensler would lead the SEC to use its regulatory authority to advance a liberal social agenda. (See this PubCo post.) And during the hearings on his nomination, Toomey was dismayed that Gensler's view of materiality was divorced from Toomey's concept of "financial" materiality.  For example, he asked, if a big public company spent an insignificant amount on, say, electricity, is it material whether that electricity came from renewable sources? Gensler replied that, according to SCOTUS, the test is whether it's material to a reasonable investor in the context of the total mix of information. So, in the hypothetical, the information about renewable sources may or may not be material, depending on the total mix of information.  Often a financially insignificant amount may be immaterial, but it must be viewed in the broader context of the mix of information. Toomey responded that, if the amount was financially insignificant, he did not see how it could be material. (See this Pubco post.)

Commissioner Lee has previously taken on the argument that climate is only a matter of social or political concern, and not material to investment or voting decisions. Just because climate has political or social significance does not preclude its being material, she has argued; rather, "all manner of market participants embrace ESG factors as significant drivers of decision-making, risk assessment, and capital allocation precisely because of their relationship to firm value. Finally, investors, the arbiters of materiality, have been overwhelmingly clear in their views that climate risk and other ESG matters are material their investment and voting decisions." (See this PubCo post.)  And in this NYT op-ed, Lee contended that outdated thinking has led some to view climate disclosure as "merely about one's policy preferences or moral choice"—i.e., more about "values" than "value." But that's not really the case today when ESG is considered "a significant driver in capital allocation, pricing and value assessments. A major study recently found that a large number of powerful institutional investors rank 'climate risk disclosures' as being just as important in their decision-making processes as traditional financial statements and other metrics for an investment's performance — like return on equity or earnings volatility." Expected U.S. climate catastrophe, such as heat, seasonal fires, rising sea levels, hurricanes and flooding, "means we must price climate risk accurately and drive investment toward an orderly, sustainable transition to green portfolios—rather than panicked scrambles and stock sell-offs as we see more and more climate disasters." (See this PubCo post.)

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