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Time to Level the Playing Field

Kristina Wyatt's Full Disclosure Newsletter: Exploring the trends and regulations helping us in the fight against climate change - one disclosure at a time

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Published May 18, 2022

On May 17th, ERM issued a report, Costs and Benefits of Climate-Related Disclosure Activities by Corporate Issuers and Institutional Investors. The report, commissioned by Persefoni and Ceres, surveyed companies and investors and found that the responding companies average $533,000 per year on climate-related disclosure activities. This data is important in the context of the SEC’s proposed climate disclosure rules because it shows that companies aren’t starting from scratch. Many companies are already doing a lot of climate reporting even absent new disclosure rules. What’s more, these costs don’t reflect the use of new technologies, which should reduce reporting costs for companies. 

But the costs to companies are just just a piece of the puzzle. The survey also found that investors spend an average of $1,372,000 annually gathering and using climate-related information. This strikes me as a reasonably solid indicator that this information is important to investors in making their investment decisions - that is, the information is material. 

Of the $1,372,000 that investors spend each year, the survey found that the largest chunk of the spend - $466,000 - goes to external ESG ratings, data providers, and consultants.  You might wonder whether investors purchase these ratings for the raters’ analyses of the rated companies. It appears that is not the case. An ERM report from 2020 asked investors how they use ESG ratings and found that they “often use the data but explicitly not the scores from a rating.” If in fact large investors spend significant sums on ESG ratings for the underlying data they provide, shouldn’t that data be available broadly to all investors?  Why should only well-heeled investors who can afford expensive research have access to the information they need to analyze companies’ climate risks? The SEC’s proposed climate disclosure rules offer to level the playing field and give all investors, and the markets broadly, access to the same critical climate-related information at the same time. 

Regulatory Developments of the Week:

New standard on GHG accounting and reporting for private equity

This past week, the private equity sector saw the emergence of  a new standard for accounting and disclosing GHG emissions. The Initiative on Climat International, in partnership with ERM, published recommendations that draw from the Greenhouse Gas Protocol, Partnership for Carbon Accounting Financials, TCFD, Science Based Targets Initiative, and CDP. The authors note that General Partners are under pressure from Limited Partners to provide climate-related data and set reduction targets across their portfolios. These standards are designed to inform a consistent approach across the sector. 

The recommendations include a seven-step process that includes calculating Scopes 1, 2, and 3 emissions of the General Partner, Scopes 1 and 2 emissions of each portfolio company, and (optionally) calculating or estimating Scope 3 emissions of each portfolio. The report provides guidance on GHG emissions accounting for financed emissions and aligns with existing initiatives, earning endorsements from the UN PRI, CDP and Ceres

SEC Issues Comments on Climate Disclosures 

E&E News reported this week that the SEC has sent “multiple rounds of comment letters to more than two dozen businesses asking for additional details -and data- on their climate risk exposures, plans and expenses.” Some companies identified were Comcast Corp., Target Corp., Royal Caribbean Cruises, Amazon.com Inc., Honda Motor Co. Ltd., and Phillips 66 Co. This is a reminder that, under the SEC’s current rules, companies have disclosure obligations with regard to the impact of climate change on their business. While the SEC’s proposed rule amendments would expand on the current disclosure requirements, the SEC’s comments reinforce the point that companies  have disclosure obligations under the SEC’s  existing rules. These obligations were spelled out in guidance the SEC issued in 2010 that explains the application of current requirements to climate-related risks and opportunities. That guidance still applies - and is all the more salient today as climate change is an ever more pressing business concern for companies across industries, as financial institutions take action to meet their net-zero commitments, and as jurisdictions around the world implement climate-related laws and regulations that impact companies’ financial planning. 


Read the rest of Kristina's Full Disclosure Newsletter and subscribe here.

Wyatt joined Persefoni from the U.S. Securities & Exchange Commission (SEC), where she served as Senior Counsel for Climate & ESG to the Division of Corporate Finance, led the rulemaking team through drafting proposed climate disclosure regulations, and worked closely with the Office of International Affairs.


Kristina Wyatt

Deputy GC, SVP Global Regulatory Climate

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