Speech by Commissioner Peirce on ESG Disclosure

Thank you, Aaron [Klein], for that introduction. This summer was the summer of the cicadas. The dull hum of their song permeated the solitude of an evening stroll, along with the disconcerting crunch as pedestrian attempts to avoid squashing the creatures inevitably failed. Every seventeen years the beady-eyed cicadas emerge from underground—a natural wonder, perhaps therefore to be forgiven for their uncouth habits and off-putting appearance. [1] As eighteenth century farmer and self-taught naturalist Benjamin Banneker, having observed three appearances of cicadas, wrote:

[I]f their lives are Short they are merry, they begin to Sing or make a noise from the first they come out of Earth till they die, the hindermost part rots off, and it does not appear to be any pain to them for they still continue on Singing till they die. [2]

Cicadas arrive on schedule and behave with a comfortable predictability. Banneker could be quite sure cicadas would emerge when he was 68 as they had done when he was 17, 34, and 51. [3] He feared when meeting them for the first time at 17 that they would devastate the crops, so he tried to kill as many as possible. On their second time through, though, he “had more sense than to endeavor to destroy them, knowing that they was not so pernicious to the fruit of the Earth as I did imagine they would be.” [4] He had learned their patterns and was able to measure their schedule and their activity.

People like predictable and measurable things—things that we can quantify, standardize, and compare with one another. Especially when something is important to us, even when we cannot easily categorize, measure, and identify what is coming, we nevertheless try. This tendency is evident in another phenomenon of this summer season, the loud calls for environmental, social, and governance (“ESG”) disclosures to facilitate the measurement and comparison of issuers and investment products. People want hard data to allow apples to apples comparisons. [5] The natural desire for ESG certainty, however, runs into the many real-life uncertainties and complications that characterize the overflowing ESG bucket. Any ESG rulemaking will have to confront these difficult realities. Before I go there, however, I better give my standard disclaimer, which is that the views I represent are my own views and not necessarily those of the SEC or my fellow Commissioners.

Front and center on our current regulatory agenda is whether and how we will move toward a more prescriptive ESG disclosure framework. [6] So, in addition to making my way through swarms of cicadas, this summer I have been wading through the many comment letters we received in response to an Ides of March request for comment on climate change and other ESG disclosures by then Acting Chair, Allison Herren Lee. [7] Although it was not a Commission request, I have learned much from these thoughtful comments as I contemplate the SEC’s role in ESG disclosures. Vigorous debate is going to be essential to any work that we do in this area, and to that end, I want to present ten theses for your consideration and our discussion this afternoon. I will lay these theses out without much sugar-coating precisely to spark a textured conversation about the complexities and consequences of a potential ESG rulemaking.

I. Thesis 1: ESG as a category of topics is ill-suited, and perhaps inherently antithetical, to the establishment of clear boundaries and internal cohesion.

Some issues are clearly ESG, such as carbon emissions, employee turnover, and dual class shares, but many other issues are not ESG in the eye of every beholder. Some of what we are excitedly calling ESG, of course, is simply the same old stuff on which companies have been reporting in accordance with our existing principles-based, materiality-oriented regulatory framework. ESG readily expands, though, to include whatever the speaker or the news media are focused on at the moment. [8] As more and more issuers and asset managers are grasping for the ESG label, they likely will press to expand the number of topics further to make it easier for them to justify calling themselves ESG. [9] However, the broader the issue set gets, the more difficult for the SEC to prescribe precise ESG rules.

ESG’s lack of a coherent unifying principle plays out in interesting ways. A recent Wall Street Journal article gave the example of a European company that is seeking to get a break on its interest rate for meeting certain ESG targets for increasing both women in management and the use of recycled plastic. [10] I can imagine how such negotiations might go, “We’ll increase our recyclables to 13% and our women to 40%, and you decrease the interest rate by 20 basis points.” “No, if you increase recyclables to 20%, we’ll let you increase women to only 30%, and we’ll cut the interest rate by 15 basis points.” Not only are women being treated as interchangeable with one another for ESG purposes, but women are being treated as interchangeable with recycled plastic. Offense taken on both counts. The point is, though, that figuring out how to deal with ESG from a disclosure standpoint is complicated by the great and growing number of unrelated (and incommensurable) items it encompasses.

II. Thesis 2: Many ESG issues lack a clear tie to financial materiality and therefore do not warrant inclusion in SEC-mandated disclosure.

Many proponents of an ESG disclosure framework insist that materiality is an appropriate restraint and some point to academic studies that show ESG items are financially material. [11] That position begs the question of where our current materiality standard and the enforcement regime that backs it up are missing the mark. Companies should be disclosing material risks under our current rules. [12] If ESG opportunities are driving management decision-making, our existing disclosure rules also pull those in. [13] Moreover, constructing an academic study to test materiality of ESG disclosures broadly or trying to extrapolate materiality from academic studies across the entire ESG landscape would be difficult. [14] The realization that many ESG items may not be material to the issuer making the disclosure has led Europe to embrace the concept of “double materiality,” in which the materiality of an item can turn on its effects on environment and society. [15] Some commenters would like the SEC to adopt a similar approach that focuses on outward effects, rather than effects on an issuer’s long-term financial value. [16] Other commenters think materiality is overrated as a disclosure filter. [17]

Materiality matters. As Commissioner Roisman recently explained, the Commission has “has held fast to the materiality principle throughout its efforts to design our corporate disclosure regime [and] even disclosure requirements that, on their face, do not appear to have materiality qualifiers were crafted by the Commission with materiality as a guiding principle.” [18] Illustrative of the focus on materiality, in 1967, the Commission explained the scope of the Wheat Report, a disclosure study that would ultimately lead to the adoption of Regulation S-K, as “improving the . . . dissemination to the investing public of information material to investment decisions.” [19]

The Commission has looked to materiality as our guiding principle when crafting disclosure requirements because it is an objective standard by which we can exercise our statutory authority to decide what is necessary or appropriate in the public interest or for the protection of investors. [20] Reasonable investors are not a uniform bunch, but they do share a desire for monetary returns on their investments. Mandating that issuers provide them with information that does not contribute to assessing the prospect for investment returns costs them in, among other things, bills for lawyers and consultants to prepare the disclosures; employee, management, and board time and attention; and potential litigation expenses. Why would we want to impose these costs on shareholders without providing them with the offsetting benefit of material information? Even if we assume that Congress gave us the necessary latitude to require disclosure of any immaterial information of our choosing, why would we want to do so? And if not materiality, what would an alternative limiting principle be? If specific ESG metrics are material to every company in every sector across time, we can identify them one-by-one for incorporation in our rules, but throwing out materiality or stretching it to encompass everything and anything would harm investors. [21]

III. Thesis 3: The biggest ESG advocates are not investors, but stakeholders.

Like ESG, “stakeholders” is a malleable term. It can encompass an issuer’s employees, neighbors, customers, suppliers, and regulators. As important as these groups are to issuers, they are not at the heart of the SEC’s mission, which is to protect investors, facilitate capital formation, and foster fair, orderly, and efficient markets. The Commission’s disclosure mandates generally address the information asymmetries that disadvantage investors.

Many non-investors have tried to repurpose the SEC’s investor-oriented disclosure tool to get information of interest to them and ultimately to shame issuers into changing their behavior. In a few instances, they have been successful. Pay ratio disclosure, for example, is of greater interest to the curious general public than to investors. [22] Similarly, Section 1502 of Dodd-Frank was designed, at the behest of humanitarian groups, to address violence in the Democratic Republic of the Congo, awkwardly and perhaps to bad result. [23]

Individual and institutional advocates of ESG-related causes have drawn inspiration from these limited experiments. They hope to use the securities laws to force issuers to make disclosures about ESG issues important to them and ultimately to compel companies to make behavioral changes. They know that requiring public disclosures about particular employment or environmental activities might cause issuers to avoid those activities altogether, regardless of the costs of those changes to the investor. [24]

Investors stand to lose from these changes. Expanding our disclosure framework to facilitate the imposition of non-investor demands to address ESG issues that happen to have the most persuasive advocates would take the agency into uncharted territory without any boundaries where it must look to something other than the investor’s interest as its guide. Corporate executives and managers, on the other hand, stand to benefit from an expansion of stakeholder-driven ESG metrics, particularly if their compensation is tied to meeting these metrics. By shifting the focus to metrics that matter to stakeholders, an ESG rule would dilute executives’ and managers’ accountability to shareholders for financial performance.

Some of the loudest voices in favor of ESG disclosures for issuers are asset managers who advise pension funds or fund complexes. Sometimes commentators classify asset managers as investors, but the fact that they work for investors does not make them investors. As fiduciaries to pension plans, institutions, or funds, these asset managers of course are obligated to put their clients’ interests first. [25] Doing so may allow them to take ESG factors into account, but only if certain circumstances are met, including that the ESG factors have a clear link to risk-adjusted returns [26] or to objectives that the client has chosen to override financial returns. Portfolio managers within a fund complex may have a diversity of views on ESG matters, given that each fund is an investor with its own tailored set of objectives. Yet, many fund complexes make voting decisions centrally and speak with a single voice on ESG issues, a voice that elevates ESG considerations. Professors Paul and Julia Mahoney point out that pension plan fiduciaries and fund managers—who are humans susceptible to pressure from peers, personally held values, employees, and others—may be making voting and investment decisions based on their own self-interest rather than in the interest of the funds they manage. [27] Our disclosure rules should be designed to aid fiduciaries in focusing on issuer disclosures that are important to achieving their clients’ financial objectives. Mandating the disclosure of ESG metrics, to the contrary, could provide agents (whether corporate officers or fund managers) with an out if their performance lags.

IV. Thesis 4: ESG rulemaking is high-stakes because so many people stand to gain from it.

Any SEC rule can create money-making opportunities, but the potential breadth and novelty of ESG issues makes an ESG rule a particularly lucrative one, and thus may make it hard for us to get objective input. The ESG consultants, standard-setters [28] and raters who are now making a lot of money in producing, seeking to standardize, and assessing voluntary disclosure have an incentive to ensure that whatever rule gets written keeps that money flowing. Consultants have an incentive to argue that the rules apply to as large a pool of issuers as possible—including small public companies and large private companies. [29] Existing standard setters might favor a rule that mandates or allows issuers to rely on their standards, but such a rule would raise a host of thorny issues related to the independence, funding, and oversight of these entities. More generally, the more metrics any ESG rule mandates, the greater degree of assurance it will require, and the higher level of liability risk it will present to issuers, the more demand it will create for consultants, auditors, lawyers, sustainability professionals, and other rent seekers. [30] One benefit many issuers hope an ESG rule would bring is fewer demands for information from ESG rating organizations, but existing raters and scorers likely will seek to remain in business by obtaining disclosures and information in addition to what the SEC mandates be disclosed. [31]

Issuers too have a shot at profiting from our ESG rules. ESG disclosures will be used by asset managers, lenders, and governments as they seek to direct capital and subsidies to highly ESG rated companies. So issuers have an incentive to shape the rules to make themselves look as good, and their competitors look as bad, from an ESG perspective as possible. To achieve their objective, companies may make joint cause with publicly popular issue advocacy groups “Bootlegger and Baptist” style. [32] An electric car manufacturer, for example, might have an incentive to fund environmental groups to push for disclosures around how much of rental car companies’ fleets are electric.

Asset managers stand to benefit financially from rules imposed on public companies, which diminishes the amount of legwork they have to do to get the information they want for their ESG funds. Once metrics are in an SEC rule, asset managers will find it much easier just to use them, even if they are unreliable, rather than digging for information on their own. So they too have an incentive to push us to pack issuer disclosure rules with lots of ESG metrics. One wonders: When the rule goes into effect, will the asset managers respond by lowering the fees they charge for ESG funds?

V. Thesis 5: “Good” in ESG is subjective, so writing a rule to highlight the good, the bad, and the ugly will be hard.

Many rating firms exist now because people do not share uniform views of what good ESG practices are for issuers or good ESG portfolios are for asset managers. As others have pointed out, ESG rankings can differ dramatically depending on who is doing the ranking. [33] Additional disclosure, according to one study, could exacerbate these differences. [34] Different ESG assessments are not surprising given that a technology, for example, can have both positive and negative climate effects, and something that may be good for the climate may be bad from a social perspective, or even according to other measures of environmental harm. [35] Consider, for example, a company’s decision to switch from fossil fuel production to renewables. The renewables do not produce carbon dioxide, but windmills might kill bats, birds, and insects, and solar panels are very difficult to recycle. [36] Building a fossil-fuel-powered electric grid in a country without one will result in carbon dioxide emissions, but will also enable the people in that country to live more prosperous, healthier lives and may be cheaper (or impose fewer harms on the local environment) than renewables. Building a new energy efficient plant might look good in disclosures, but including the environmental and financial cost of scrapping the old plant might change the picture. A car company might decrease its Scope 3 emissions by producing more electric vehicles, but consumers plugging in more cars may challenge electric grids. [37] While a rule that mandates the disclosure of ESG metrics by issuers need not explicitly embody ESG value judgments, choices about which metrics to require can indirectly reflect such judgments.

Our current rules for funds and advisers are value-neutral. Tell us what your objectives are and how you achieve them. That standard applies whether or not the objective involves ESG. Europe, by contrast, is expressly making ESG judgments about investment portfolios and strategies. [38] If the SEC in the name of standardizing terminology were to start evaluating whether an adviser’s or fund’s interpretation of ESG matched the SEC’s conception of ESG, it would raise questions we have no business asking or answering. Are funds that avoid fossil fuels ESG, while those that include companies working to replace wood and coal fuel in developing nations with natural gas not ESG? Should short positions offset the carbon footprint of long positions? How should synthetic positions be treated? Does a fund that concentrates on reducing carbon footprints qualify as an ESG fund even if its portfolio companies rank poorly with respect to working conditions or water usage?

VI. Thesis 6: An ESG rulemaking cannot resolve the many debates around ESG models, methodologies, and metrics.

Because ESG models, methodologies, and metrics involve a lot of assumptions and uncertainties, issuers take different approaches to reporting. Nor is there a consensus among investors on which framework should be used to report key metrics. [39] Consider the REIT industry, which boasts wide participation in ESG reporting. A 2020 survey found that 73% of firms aligned their reporting to CDP, 50% to GRESB, 49% to GRI, 45% to SASB, and 35% to TCFD. [40] In order to codify something that is in flux and subject to much disagreement, the SEC would have to engage in substantive judgments about the reliability and accuracy of different approaches.

Even assessing an issuer’s exposure to climate change is difficult. The science and technological tools have improved dramatically since the 1970s when climate concerns were focused on the coming ice age, [41] but climate modeling is still challenging. Models rely on assumptions about many things, including economic activity, technological development, consumer preferences, regulatory policy, natural events such as volcanic eruptions, and human adaptation. [42] Further difficulties arise from extrapolating from climate models to understand how a particular issuer would be affected. [43]

Individual metrics spark controversy too. Treating ESG metrics as if they are on par with standard accounting metrics and susceptible to financial-type audits, as some would like us to do, [44] ignores the messier reality. [45] Scope 3 emission disclosures are common, for example, but there is still uncertainty about how to calculate them accurately and without prohibitive cost. [46] Treatment of carbon offsets is another area about which there is not consensus. [47]

The SEC is not particularly well-suited to make judgments about which climate metrics should be reported by whom. Agencies authorized by Congress to act in these areas are better at making these judgments and, indeed, are already doing so. The Environmental Protection Agency (“EPA”), for example, runs the Greenhouse Gas Reporting Program (“GHGRP”), which requires “reporting of greenhouse gas (GHG) data and other relevant information from large GHG emission sources, fuel and industrial gas suppliers, and CO2 injection sites in the United States.” [48] Do we need another disclosure regime specifically designed for GHGs? The EPA only requires GHG emission data at the facility level from the largest GHG emitters, but some are advocating that the SEC require GHG emission data from every single U.S. company, public or private. [49] What does the SEC know about emissions that the EPA does not?

Metrics give us something to hang our hats on, but what is the point of metrics in which we cannot have confidence? One commenter, acknowledging the limitations of disclosures around issues like climate, pressed for rough numbers anyway:

For sustainability disclosure, and for climate-disclosure in particular, data accuracy is important, but it is less important than disclosure that captures the right order of magnitude on a relevant scope of reporting. The SEC should not allow the perfect to become the enemy of the good when it comes to climate and ESG reporting. [50]

If, however, the goal is comparability, reliability, and accuracy, codifying rough directional estimates would not accomplish the goal.

VII. Thesis 7: Emotions around ESG issues may push us to write rules outside our area of authority.

Conversations about ESG matters, particularly those related to climate, are threaded with fear, guilt, and despair born of real concern for the planet, animals, plants, and people. Whether it is the confession of a guilt-ridden fellow chocaholic [51] or Greta Thunberg’s latest urgent plea to world leaders, these topics are riddled with emotion. [52] Emotions—either our own or those of the people pleading with us to use our disclosure mandates for substantive ends—can tempt us to wander outside our limited regulatory mission to address any number of issues that deeply concern us.

Emotions are a poor guide to problem solving. Remember Mr. Banneker’s initial reaction to the cicadas was fear—who would not fear the worst of such a swarm of massive insects? But his initial fears of devastation proved unfounded; he realized all the cicadas wanted to do was to sing us a song as they looked for love. Concerns about the effect of our activities on the climate are not so easily assuaged, but cool-headed human ingenuity can help us avert, address, and adapt to climate change. Hastily conceived ESG disclosure rules, however, can impede such preventative, remedial, and adaptive efforts by cutting off capital to places where it can be most effective at solving the world’s most intractable problems.

VIII. Thesis 8: ESG issues are inherently political, which means that an ESG rulemaking could drag the SEC and issuers into territory that is best left to political and civil society institutions.

Many advocates of ESG disclosure mandates are concerned about even immaterial political spending by corporations, [53] yet ESG mandates would place political issues front and center at corporations, and the SEC along with them. Congress and state legislatures, with their direct accountability to the American people, and civil society institutions are the proper venues for deciding political and social issues. Professor Amanda Rose explains: “Asking the SEC to choose an ESG disclosure framework based in part on considerations that extend into the realm of politics thrusts the SEC into a less familiar and more controversial role.” [54] Yafit Cohn in a statement before the SEC’s Asset Management Advisory Committee pointed out that corporations might not be the right institutions within which to debate ESG topics because they lack democratic accountability for making decisions that will have society-wide effects. [55]

To date, Congress has not granted authority to the SEC to address ESG issues for the purpose of promoting goals unrelated to the federal securities laws. Serious democratic legitimacy concerns arise when an independent agency expands its own authority. These concerns increase significantly when the agency delegates to one or more unaccountable third-party standard-setters the authority to establish disclosure requirements for an ever-expanding list of politically and socially sensitive subject matters. Wading into controversial issues, whether directly or indirectly through a third-party standard setter would consume our limited resources and impede our ability to carry out our given mission of protecting investors and the integrity of the capital markets.

IX. Thesis 9: ESG disclosure requirements may direct capital flows to favored industries in a way that runs counter to our historically agnostic approach.

Directing capital flows to green uses is unabashedly at the heart of international ESG standard-setting efforts, [56] and many commenters want us to follow suit. [57] Following this course would transform the SEC, as author of those mandates, into an active participant in shifting capital flows to purportedly green, and away from purportedly brown, investments. That role would be a new one for an agency that has focused not on deciding where capital should go, but on making disclosure available and allowing investors to decide where capital should go. We typically do not tell investors whether we think their decisions are financially, let alone morally, good.

A very prescriptive climate disclosure framework for issuers together with standards for asset managers that key off that framework would change behavior and move capital to companies and investment products that perform well according to the selected metrics and away from those that do not. The more detailed and prescriptive the metrics are, the greater the role those metrics would play in capital allocation.

X. Thesis 10: An ESG rulemaking could play a role in undermining financial and economic stability.

We cannot identify with certainty the sources of key solutions to the climate and other problems we face, and some of them likely will come from completely unexpected places. Unless, that is, we establish metrics based on current understandings of both our problems and their solutions and use those metrics to allocate capital. Doing this, however, would be a mistake: The entire twentieth century teaches us that centralized capital allocation does not work, and there is no reason to think that centrally developed ESG metrics—even if comparable, reliable, and accurate (and that is a big if)—will be the exception.

SEC regulation in this area, including disclosure regulation, is likely to exacerbate the homogenization of capital flows already occurring as a result of voluntary allocation of capital to ESG investments in the United States and regulatory mandates in other jurisdictions. Putting the SEC’s regulatory thumb on the scale, as part of a broader government green finance effort, will only magnify concentration of capital in certain sectors. [58] This rule-based flow of capital will be inflexible; it will not redirect its flow easily in response to scientific, economic, and technological developments.

The growing global concentration of capital in certain sectors or issuers deemed to be green could destabilize the financial system. Lots of money will be mandated to chase green investment opportunities. As with past regulatory efforts to drive investment toward particular sectors, current efforts to green the financial system could precipitate future financial instability. [59]

The world’s single-minded focus on sustainability also could cause economic dislocation. Many of the potentially large unintended consequences of the greening of capital flows that ESG disclosures will help to drive are likely to be borne by people who can least afford it. Michael Shellenberger in his book Apocalypse Never eloquently cautions against using our climate goals to deny developing countries the technologies they need to modernize so that their citizens can enjoy food, water, security, and good health. [60] If capital is not available for the sectors and companies developing nations need for economic growth, these countries’ economies could be destabilized. Economically disadvantaged communities in the United States could experience economic hardship too as a result of the shift in capital flows.

Concluding Thoughts

You have made it with me through ten theses, so I will quickly draw to a close. I do not want to do so without first offering a potential better path forward. Rather than embarking on a prescriptive ESG rule that departs from and undermines our agency’s limited, but important, role, we could work within our existing regulatory framework. We could put out updated guidance to help issuers think through how the existing disclosure regime already reaches many ESG topics and to address frequently asked questions that arise in connection with the application of the existing disclosure regime. [61] We also might consider whether we can give any Commission-level comfort about forward-looking statements along the lines of what former Chairman Clayton, Corporation Finance Director Bill Hinman, and Office of Municipal Disclosure Director Rebecca Olsen did in connection with COVID-19. [62] Finally, we can work with investment advisers using ESG strategies and products to ensure that investors understand what that adviser’s brand of ESG means in theory and practice. [63] I am looking forward to hearing other suggestions in the discussion that follows.

There is a lot of talk these days about 2030 and 2050 emissions targets. My target is for 2038, when the cicadas return. I hope that they will find—thanks to wise policy choices that enable rather than stifle free capital flows and the free exercise of human ingenuity—a world that is greener, cleaner, healthier, and more prosperous than the one their forebears saw in 2021. In that world, perhaps even the chocolate-covered cicadas will be net-zero carbon.

Endnotes

1See Ben Cost, Heads Up: Yes, A Brood X Cicada Just Peed On You, NY Post (May 27, 2021), https://nypost.com/2021/05/27/brood-x-cicadas-latest-annoying-habit-urinating-on-people/.(go back)

2Journals of Benjamin Banneker (June 1800) Reprinted in Janet E. Barber & Asamoah Nkwanta, Benjamin Banneker’s Original Handwritten Document: Observations and Study of the Cicada, 4 J. of Humanistic Mathematics 112, 114 (Jan. 2014), https://scholarship.claremont.edu/cgi/viewcontent.cgi?article=1070&context=jhm.(go back)

3Id. at 116.(go back)

4Id.(go back)

5My colleague Elad Roisman put it this way:

Investors and fund managers have an insatiable desire for columns in spreadsheets, but some of the data that has been requested is inherently imprecise, relies on underlying assumptions that continually evolve, and can be reasonably calculated in different ways. And ultimately, unless this information can meaningfully inform an investment decision, it is at best not useful and at worst misleading.

Elad Roisman, Commissioner, SEC, Putting the Electric Cart before the Horse: Addressing the Inevitable Costs of a New ESG Disclosure Regime (June 3, 2021), https://www.sec.gov/news/speech/roisman-esg-2021-06-03.(go back)

6Press Release, SEC Announces Annual Regulatory Agenda (June 11, 2021), https://www.sec.gov/news/press-release/2021-99. See also Climate Change Disclosure, RIN 3235-AM87 (Spring 2021), https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202104&RIN=3235-AM87 (“The Division is considering recommending that the Commission propose rule amendments to enhance registrant disclosures regarding issuers’ climate-related risks and opportunities”).(go back)

7Allison Herren Lee, Acting Chair, SEC, Public Input Welcomed on Climate Change Disclosures (Mar. 15, 2021), https://www.sec.gov/news/public-statement/lee-climate-change-disclosures. See also Comments on Climate Change Disclosures https://www.sec.gov/comments/climate-disclosure/cll12.htm.(go back)

8The comment letters give a sense of the breadth of the term ESG. See, e.g., Americans for Financial Reform Education Fund et al., Comment Letter on Climate Change Disclosures, 13-14 (July 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916226-244992.pdf (recommending the SEC require disclosure of average compensation and benefits of full-time employees, senior executives, and seasonal, contracted, and union-represented employees); Mental Health America & Center for Law and Social Policy, Comment Letter on Climate Change Disclosures, 4 (June 15, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8922506-245114.pdf (characterizing as ESG health equity, behavioral health, and children’s health); Int’I WELL Building Inst., Comment Letter on Climate Change Disclosures, 4 (June 15, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916932-245027.pdf (suggesting the SEC require disclosure of percent of employee participation in corporate wellness programs, cleaning practices, and worker protective equipment); World Wildlife Fund, Comment Letter on Climate Disclosures, 2 (June 15, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8922489-245105.pdf (characterizing as ESG biodiversity loss); Ocean Conservancy, Comment Letter on Climate Disclosures, 4 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916230-245013.pdf (characterizing as ESG petrochemical investment and plastics production); AFL-CIO, Comment Letter on Climate Disclosures, 4 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8914386-244692.pdf (characterizing as ESG pension and healthcare benefits and skills training); Farm Animal Investment Risk and Return (FAIRR) Initiative, Comment Letter on Climate Disclosures, 10 (June 15, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8917907-245067.pdf (characterizing as ESG antibiotic resistance); Consumer Federation of America, Comment Letter on Climate Change Disclosures, 38 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8914457-244717.pdf (seeking disclosure of environmental justice and racial justice considerations); The Shareholder Commons, Comment Letter on Climate Change Disclosures, 4-5 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915574-244818.pdf (characterizing as ESG obesity, inequality, racial and gender disparities, and antimicrobial resistance); Public Citizen, Comment Letter on Climate Change Disclosures, (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-9063402-246427.pdf (seeking disclosure requirements on political activity and country-by-country tax payments).(go back)

9See, e.g., Justin Scheck et al., Environmental Investing Frenzy Stretches Meaning of ‘’Green,” Wall St. Journal, (June 24, 2021), https://www.wsj.com/articles/environmental-investing-frenzy-stretches-meaning-of-green-11624554045 (“Some money managers are stretching the definition of green in how they deploy investors’ funds.”); Anna Hirtenstein, Sustainable-Bond Market Gets a Big Boost, Wall St. J., (Sept. 25, 2020), https://www.wsj.com/articles/sustainable-bond-market-boosted-by-europes-top-institutions-11601048068 (“Market participants have given priority to growth over stringency, which has led to skepticism around the validity of some companies’ environmental claims, an issue known as greenwashing.”).(go back)

10Paul J. Davies, Risky Borrowers Hope to Boost Green, Diversity Credentials, Wall St. J., (Feb. 2, 2021), https://www.wsj.com/articles/risky-borrowers-hope-to-boost-green-credentials-11612260535.(go back)

11See, e.g., U.S. Impact Investing Alliance, Comment Letter on Climate Change Disclosures, 4-5 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916186-244978.pdf (declaring that “countless studies have shown that ESG factors are not only material but are also effective for risk mitigation and often drive outperformance”); Value Edge Advisors, Comment Letter on Climate Change Disclosures, 8 (July 5, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-9032541-246142.pdf (stating that “no one is asking for disclosures that are anything but vitally financially material to investment risk and return”); Center for American Progress, Comment Letter on Climate Change Disclosures, 13 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916219-244989.pdf (recommending the SEC “not adopt alternative formulations of materiality found in” third-party standard setters); Ceres, Comment Letter on Climate Change Disclosures, 25 (June 10, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-245664.pdf (“Investors need the SEC to mandate and enforce material climate-related disclosures that are informative, rigorous, consistent and comparable across companies and markets, and which do not mislead investors or the public.”).(go back)

12See Regulation S-K, Item 105 (requiring “a discussion of the material factors that make an investment in the registrant or offering speculative or risky”). See also Commission Guidance Regarding Disclosure Related to Climate Change, Rel. No. 33-9106 (Feb 8. 2010), https://sec.gov/rules/interp/2010/33-9106.pdf.(go back)

13See Regulation S-K, Item 303(a) (stating the purpose of the MD&A disclosure requirement is “to better allow investors to view the registrant from management’s perspective”).(go back)

14A recent study found, for example, that stock price reaction to news on ESG issues differed across ESG topics. George Serafeim & Aaron Yoon, Which Corporate ESG News does the Market React to? Harvard Bus. School, Working Paper No. 21-115, 15 (2021), https://www.hbs.edu/ris/Publication%20Files/WP21-115_397685a0-a044-4f86-8e6a-e4b9a0769cc7.pdf (finding that “stock prices only react to the news on ESG issues that is classified as financially material” and that the “price reaction is larger for ESG news that is positive, receives more attention, and relates to social capital issues relative to natural or human capital issues”).(go back)

15Double materiality means “a company is required to disclose information on environmental, social and employee matters, respect for human rights, and bribery and corruption, to the extent that such information is necessary for an understanding of the company’s development, performance, position and impact of its activities.” In addition to the traditional concept of financial materiality, this requirement includes “environmental and social materiality” relating to information “necessary for an understanding of the external impacts of the company.” EU Commission, Consultation Document on the Update of the Non-Binding Guidelines on Non-Financial Reporting, 7 (2019), https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/2019-non-financial-reporting-guidelines-consultation-document_en.pdf.(go back)

16See, e.g., Mirova, Comment Letter on Climate Change Disclosures, 4 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915609-244845.pdf (recommending that the SEC “make clear to registrants that the information requested from them is aimed at assessing their level of overall impact and contribution (be it positive or negative) to the fight against climate change”); United Nations Econ. Comm’n for Europe, Comment Letter on Climate Change Disclosures, 2 (June 10, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8902624-243457.pdf (“While the initial focus of establishing a global framework should be on the most salient and urgent aspect of sustainability, that is, the contribution of greenhouse gases (GHGs) to global warming, the standards should also address broader global environmental impacts, e.g., local pollutants/environmental damage (e.g. particulates, groundwater), and social conditions including but not limited to displacement resulting from the projects . . . .”); Keramida,Inc., Comment Letter on Climate Change Disclosures, 1 (June 11, 2021) https://www.sec.gov/comments/climate-disclosure/cll12-8906875-244204.pdf (“We also call on the SEC to take into consideration the broader impacts of climate change as part of the rulemaking process, including the physical and transition impacts of the climate crisis on communities, human rights implications, and the connection between climate, water, food, and forests.”); Farm Animal Investment Risk and Return (FAIRR) Initiative, Comment Letter on Climate Disclosures, 8 (June 15, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8917907-245067.pdf (advocating a double materiality standard that reflects “both the impacts of a company’s operations on the climate and the risks and impacts from the climate on a company’s operations”); The Shareholder Commons, Comment Letter on Climate Disclosures, 2 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915574-244818.pdf (arguing that any ESG rulemaking “must account for investors’ financial interests in protecting systems and common resources, not just the interests of a hypothetical shareholder whose sole interest is in the financial performance of a single company”); Sunrise Bay Area, Comment Letter on Climate Change Disclosures, 6 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915600-244832.pdf (finding “the materiality standard for disclosure to be far too narrow” and favoring “an expanded standard that considers the full range of people and communities that hold a stake in a company’s actions”).(go back)

17See, e.g., Jill E. Fisch et al., U. Penn. Law, Comment Letter on Climate Change Disclosures, 13 (June 11, 2021),https://www.sec.gov/comments/climate-disclosure/cll12-8911728-244385.pdf (“Nothing in the federal securities laws purports to limit the SEC’s authority to require line-item disclosures to those that are individually material.”); The U.S. Impact Investing Alliance, Comment Letter on Climate Change Disclosures, 5 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916186-244978.pdf (asserting that “there is no statutory or regulatory reason that the Commission should limit its mandated disclosures to what is considered material”); Nia Impact Capital, Comment Letter on Climate Change Disclosures, 4 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916937-245029.pdf (characterizing materiality as “counter-productive to the goals of the SEC” as it is “dependent on backward looking datasets”).(go back)

18Elad L. Roisman, Commissioner, SEC, Can the SEC Make ESG Rules that are Sustainable? (June 22, 2021), https://www.sec.gov/news/speech/can-the-sec-make-esg-rules-that-are-sustainable.(go back)

19Announcement of Disclosure Study, SEC Release (Nov. 27, 1967), http://3197d6d14b5f19f2f440-5e13d29c4c016cf96cbbfd197c579b45.r81.cf1.rackcdn.com/collection/papers/1960/1967_1127_SECRelease.pdf (emphasis added).(go back)

20See Notice of Comm’n Conclusions & Rulemaking Proposals in the Pub. Proceeding Announced in Sec. Act Release No. 5569 (Feb. 11, 1975), Release No. 5627 (Oct. 14, 1975) (explaining that the materiality limitation on the Commission’s statutory authority to require disclosure “is believed necessary in order to insure meaningful and useful disclosure documents of benefit to investors generally without unreasonable costs to registrants and their shareholders”).(go back)

21See, e.g., U.S. Chamber of Commerce, Comment Letter on Climate Change Disclosures, 3 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8907271-244249.pdf (“The longstanding materiality standard must continue to be at the core of corporate disclosure”); Delta Airlines, Comment Letter on Climate Change Disclosures, 2 (June 16, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8971396-245949.pdf (expressing support for a framework that “adheres to considerations of financial materiality through the lens of a reasonable investor”); Wachtell, Lipton, Rosen & Katz, Comment Letter on Climate Change Disclosures, 7 (June 15, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8944064-245710.pdf (rejecting double and dynamic materiality because “once the universe of disclosure is expanded beyond financially material information, there is no clear limiting principle”); Federated Hermes, Comment Letter on Climate Change Disclosures, 4-5 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916203-245005.pdf (“We caution against a rulemaking that would mandate disclosure of non-material climate change-related disclosures because such information is not decision-useful to investors. In our experience, non-material information does not improve due diligence; on the contrary, it raises costs by imposing greater demands on the time needed to review the information disclosed . . . [and] is not helpful to . . . smaller or retail investors who may not have the ability to effectively digest or compare a large number of disclosures quickly.”).(go back)

22See, e.g., Steven A. Bank & George S. Georgiev, Securities Disclosure as Soundbite: The Case of CEO Pay Ratios, 60 B.C. L. Rev. 1123 (2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3324882# (concluding that the pay ratio rule is “ineffectual and potentially counterproductive” as a tool for providing investors with information, but “is more successful in fomenting or contributing to public discourse on broader societal matters”).(go back)

23See, e.g., The Costs and Consequences of Dodd-Frank Section 1502: Impacts on America and the Congo: Hearing Before the Subcomm. on Int’l Monetary Pol’y and Trade of the H. Comm. on Fin. Serv., 112^th Cong. 158-169 (2012) (statement of Mvemba Phezo Dizolele, Distinguished Visiting Fellow, Hoover Inst. on War), https://www.govinfo.gov/content/pkg/CHRG-112hhrg75730/html/CHRG-112hhrg75730.htm (“Section 1502 builds on a weak foundation and requires a buy-in of the very negative actors it seeks to tame. This approach prevents basic peace-making models and rewards criminals and would-be spoilers.”); A Progress Report on Conflict Minerals: Hearing Before the Subcomm. on Africa and Global Healthy Policy of the S. Comm. on Foreign Relations, 115th Cong. (2017) (statement of Mvemba Phezo Dizolele, Professorial Lecturer, Johns Hopkins School of Advanced Int’l Studies), https://www.foreign.senate.gov/imo/media/doc/040417_Dizolele_Testimony.pdf (“The implementation of Section of 1502 led to increased unemployment, loss of revenue for artisanal miners, and increased fraud. . . . Due to its myopic approach, Section 1502 misdiagnosed the mineral trade as the root of the conflict, not as a symptom, and offered inadequate prescriptions and no reprieve from the aforementioned incidents.”).(go back)

24See, e.g., World Wildlife Fund, Comment Letter on Climate Change Disclosures, 1-2 (June 15, 2021), https://www.sec.gov/comments/climate-disclosure/cll12.htm (“[Disclosure] [s]tandards should send a strong signal to companies to act now to address long-term risks from climate change and natural resource loss. . . . [W]e are striving to activate new lines of accountability . . . to accelerate the change we need, and expanded disclosure of climate-related risk is an important step forward to internalizing climate considerations in corporate and financial decision making.”). See also, Hans Christensen et al., U. Chicago, Comment Letter on Climate Change Disclosures, 77 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-245053.pdf (“[T]he number of CSR reporting topics is likely large and covers a broad range of ESG issues. This materiality concept seems to be motivated by a desire to drive change through CSR reporting. The underlying idea is that broad CSR disclosures make firms internalize the (social) costs of their impacts on the environment and society and eventually lead to changes in how they operate.”).(go back)

25See Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Release No. IA-5248, 7-8 (June 5, 2019, https://www.sec.gov/rules/interp/2019/ia-5248.pdf (“An investment adviser’s fiduciary duty under the Advisers Act comprises a duty of care and a duty of loyalty. This fiduciary duty requires an adviser ‘to adopt the principal’s goals, objectives, or ends.’ This means the adviser must, at all times, serve the best interest of its client and not subordinate its client’s interest to its own. In other words, the investment adviser cannot place its own interests ahead of the interests of its client. This combination of care and loyalty obligations has been characterized as requiring the investment adviser to act in the ‘best interest’ of its client at all times.”) (internal citations omitted).(go back)

26See Max M. Schanzenbach & Robert H. Sitkoff, Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee, 72 Stan. L. Rev. 381, 382 (2020), https://www.stanfordlawreview.org/print/article/reconciling-fiduciary-duty-and-social-conscience/ (“We show that ESG investing is permissible under American trust fiduciary law if two conditions are satisfied: (1) the trustee reasonably concludes that ESG investing will benefit the beneficiary directly by improving risk-adjusted return; and (2) the trustee’s excusive motive for ESG investing is to obtain this direct benefit.”).(go back)

27Paul G. Mahoney and Julia D. Mahoney, The New Separation of Ownership and Control: Institutional Investors and ESG, Colum. Bus. L. Rev. (forthcoming), https://www.sec.gov/comments/climate-disclosure/cll12-8855236-238441.pdf (“Money managers face pressure from social peers, individual politicians, and activists to show that they are on the ‘right side’ of current political issues. As Barzuza, Curtis, and Webber point out, fund managers also face pressure from their own employees to incorporate ESG principles into investment decisions. These pressures are intended to, and may, lead fund managers who value the quiet life to fall in line with ESG principles even if they are not persuaded they are in the beneficiaries’ interests. In doing so, the fund manager acts on the basis of personal interest.”) (citing Michal Barzuza, Quinn Curtis & David H. Webber, Shareholder Value(s), Index Fund ESG Activism and the New Millennial Corporate Governance, 93 S. Cal. L. Rev. 1243, 1251 (2020)).(go back)

28See, e.g., The Future of Sustainability Reporting Standards, Ernst & Young (June 2021), https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/sustainability/ey-the-future-of-sustainability-reporting-standards-june-2021.pdf?download (surveying the current landscape of standard setters and explaining efforts at harmonization).(go back)

29See, e.g., MSCI, Comment Letter on Climate Change Disclosures, 5-6 (June 12, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8911327-244284.pdf (“Therefore, we are of the view that mandatory disclosure of this core data set should be required from a broad range of companies beyond publicly traded companies within an appropriate threshold for private companies set by policymakers.”); IHS Markit, Comment Letter on Climate Change Disclosures, 13 (June 13, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8917916-245084.pdf (noting increased demand for ESG disclosures by investors in private companies and recommending the SEC and Department of Labor require ERISA limited partner investors in private funds to require general partners of private funds to take ESG into account in order to access limited partner capital); Preqin, Comment Letter on Climate Change Disclosures (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915226-244801.pdf (urging the SEC to bring ESG disclosure and transparency to the private markets).(go back)

30See, e.g., Christopher A. Iacovella, Comment Letter on Climate Change Disclosures, 2 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8906849-244183.pdf (“It appears that an entrenched professional class on Wall Street consisting of ESG standard-setters, ratings firms, well-heeled corporate attorneys, auditors, investment banks, asset managers, proxy advisors, and index providers stands ready to reap a massive monetary windfall from a government mandate of ESG Disclosure.”).(go back)

31See, e.g., Society for Corporate Governance, Comment Letter on Climate Change Disclosures 9 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8914283-244663.pdf (“If the Commission mandates a particular disclosure framework, we do not believe the requests for companies to provide information will stop or decrease in any meaningful way. Instead, we believe that companies will make the required disclosures, but still be faced with requests to respond to new third-party surveys and/or direct requests from asset managers.”).(go back)

32See Bruce Yandle, Bootleggers and Baptists: The Education of a Regulatory Economist, Regulation, May/June, 1983, at 13, https://techliberation.com/wp-content/uploads/2010/12/v7n3-3.pdf (“Bootleggers, you will remember, support Sunday closing laws that shut down all the local bars and liquor stores. Baptists support the same laws and lobby vigorously for them. Both parties gain, while the regulators are content because the law is easy to administer.”).(go back)

33See Shane Shifflett, How ESG Stocks Perform Depends on Who Ranks Them, Wall St. J., (June 11, 2021), https://www.wsj.com/articles/how-esg-stocks-perform-depends-on-who-ranks-them-11623403803?reflink=desktopwebshare_permalink (analyzing different rankings of nearly 500 US companies rated by three ESG rating providers).(go back)

34See Dane M. Christensen, George Serafeim, Anywhere Sikochi, Why is Corporate Virtue in the Eye of the Beholder? The Case of ESG Ratings, The Accounting Rev. 4-5 (Feb. 26, 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3793804 (“We predict and find that ESG raters tend to disagree less about ESG inputs and more about ESG outcomes. This is consistent with the notion that the evaluation of outcomes is more subjective and relies on having a shared understanding of what a good versus a bad outcome might be. Further, we predict and find that greater ESG disclosure exacerbates these disagreements, especially in the case of outcomes, consistent with our argument that more pieces of information that require subjective evaluation should lead to greater disagreement.”).(go back)

35Michael Shellenberger discusses these trade-offs in Chapter 9 of his book Apocalypse Never: Why Environmental Alarmism Hurts Us All, “Destroying the Environment to Save It.” See Michael Shellenberger, Apocalypse Never: Why Environmental Alarmism Hurts Us All (Harper Collins, 1^st ed. 2020).(go back)

36See, e.g., Pacific Research Institute, Comment Letter on Climate Change Disclosures, 4 (June 8, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8895811-241292.pdf (noting that “the lifespan of a solar panel is generally regarded as 25 to 30 years, and disposal of the many hazardous materials that make up a solar panel creates potential environmental risks”).(go back)

37See Kerry A. Emanuel, Nuclear Salvation, 50 The Bridge 52, 53 (2021), http://texmex.mit.edu/pub/emanuel/PAPERS/Nuclear_Salvation.pdf (“Decarbonization of vehicles, today responsible for about a quarter of global greenhouse gas emissions, will also drive up demand for electricity.”). In addition, if they catch fire, electric vehicles can consume a lot of water. See Cyrus Farivar, Federal Regulators Warn of Risks to Firefighters from Electrical Vehicle Fires, NBC NEWS (June 20, 2021), https://www.nbcnews.com/business/autos/federal-regulators-warn-risks-firefighters-electrical-vehicle-fires-n1271084 (reporting that one electric vehicle fire took 28,000 gallons to extinguish, “an amount the department normally uses in a month. That same volume of water serves an average American home for nearly two years. By comparison, a typical fire involving an internal combustion car can often be quickly put out with approximately 300 gallons of water, well within the capacity of a single fire engine.”).(go back)

38See Commission Regulation 2020/852 of the European Parliament and of the Council on the Establishment of a Framework to Facilitate Sustainable Investment (June 18, 2020), https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32020R0852&from=EN.(go back)

39See MSCI Investment Insights 2021: Global Institutional Investor Survey, MSCI, 23 (Mar. 2021), https://www.aprea.asia/images/MSCI-Investment-Insights-2021-Report_1.pdf (finding that investor preferences for third-party ESG frameworks differ, with the most popular being PRI (76%), TCFD (57%), CDP (48%), GRI (38%), SDGs (31%), SASB (20%), own framework (20%)).(go back)

402021 REIT Industry ESG Report, Nareit, 11 (June 2021), https://www.reit.com/sites/default/files/2021-06/Nareit_ESG_Report_2021_Final.pdf.(go back)

41See, e.g., Ice Age 1978 Leonard Nimoy, YouTube (Jan. 18, 2018), https://www.youtube.com/watch?v=7tAYXQPWdC0.(go back)

42Commenters noted uncertainties, limitations, and risks associated with climate modeling. See CRE Finance Council, Comment Letter on Climate Change Disclosures, 9 (June 9, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8906774-244142.pdf (observing that commercially available climate models “are often plagued by uncertainty”); National Ocean Industries Association, Comment Letter on Climate Change Disclosures, 3 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8906791-244128.pdf (stating “uncertainty associated with the impacts of climate on both financial condition as well as physical assets reinforces the need for caution in considering actions regarding disclosures surrounding potential or modelled climate change impacts”); Western Energy Alliance & US Oil & Gas Association, 3 (June 12, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8911630-244372.pdf (arguing that with varying modeling scenarios yielding different results, “[m]aking meaningful business decisions under those uncertainties is difficult at best, if not impossible.”); Benjamin Zycher, American Enterprise Inst., Comment Letter on Climate Change Disclosures, 7 (June 10, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8904262-243681.pdf (“Again, public companies conducting climate ‘risk’ analysis will have powerful incentives to choose among assumptions on future emissions and atmospheric concentrations, climate sensitivity, and other crucial parameters so as to insulate themselves from political attack, adverse regulatory actions, and litigation. They thus will be led toward analytic homogeneity, yielding a very real danger of an artificial ‘consensus’ regardless of the actual evidence, and perhaps largely inconsistent with it. Any such consensus would be an artifact of the political pressures to which the public companies would be subjected; it would have nothing to do with ‘science.’”). See also Norbert Michel, et al., Using Financial Regulation to Fight Climate Change: A Losing Battle, The Heritage Foundation, 4-5 (June 24, 2021), https://www.heritage.org/markets-and-finance/report/using-financial-regulation-fight-climate-change-losing-battle (highlighting uncertainties and limitations of climate models, including the use of decades-long time horizons used in models compared to the need to assess business risk over a period of months or years, the veracity of climate analytics, the use of worst-case greenhouse-gas concentration trajectories, and the lack of credibility of integrated assessment models used to justify the social cost of carbon dioxide). Some members of the scientific community have highlighted similar concerns with climate modeling. See e.g., Steven E. Koonin, Unsettled: What Climate Science Tells Us, What It Doesn’t, and Why It Matters, 83-85 Kindle ed. (2021) (noting that “it is impossible—for both practical and fundamental reasons—to tune the dozens of parameters so that the model matches the far more numerous observed properties of the climate system”); Judith Curry, 5 Minutes, Climate Etc.com (July 11, 2021), https://judithcurry.com/2021/07/11/5-minutes/ (“Climate model predictions of alarming impacts for the 21^st century are driven by an emissions scenario, RCP8.5, that is highly implausible. Climate model predictions neglect scenarios of natural climate variability, which dominate regional climate variability on interannual to multidecadal time scales.”).(go back)

43See, e.g., Energy Infrastructure Council, Comment Letter on Climate Change Disclosures, 6 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915206-244790.pdf (“Given the non-linearity of such projections, even the leading climate modeling is currently subject to significant limitations with respect to capturing and forecasting accurate climate risks for specific geographies or individual companies.”); Environmental Bankers Assoc., Comment Letter on Climate Change Disclosures, 3 (May 17, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8901039-242096.pdf (“Global General Circulation Models (GCM) are often used to project future climate conditions; however, a great deal of uncertainty is introduced when downscaling or bias-correcting these models. . . . Because global model downscaling and corrections introduce uncertainty, relative accuracy must be considered when trying to quantify hypothetical future climate impacts.”); Katie Tubb, Heritage Foundation, Comment Letter on Climate Change Disclosures, 4 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8907322-244259.pdf (explaining the difficulty of the electricity sector to incorporate climate modeling into their processes despite a clear connection between climate-related emissions and risks for that industry); Nareit, Comment Letter on Climate Change Disclosures, 15 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8911339-244295.pdf (expressing concern for how climate modeling disclosures “could be reliably developed and verified across sectors and companies at large”).(go back)

44See, e.g., As You Sow, Comment Letter on Climate Change Disclosures, 19 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8955570-245843.pdf (“We recommend explicit instruction to auditors concerning the standards for testing and evaluating climate related disclosures to ensure that where material climate related financial events are triggered that appropriate disclosure processes and statements occur.”); Consumer Federation of America, Comment Letter on Climate Change Disclosures, 62 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8914457-244717.pdf (“Because of the critically important role entrusted to auditors to ensure the accuracy of financial disclosures, we urge the Commission, to the extent appropriate and feasible, to require ESG-related financial disclosures to be included in the financial statements and subject to an independent audit.”); Ceres, Comment Letter on Climate Change Disclosures, 47 (June 10, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-245664.pdf (“[W]e recommend the SEC consider requiring high-quality assurance for any climate change disclosure standards it adopts or requires by reference to another standard-setting body. At a minimum, disclosure of companies’ GHG emissions, characterization of capital expenditures, and scenario analyses should be assured at the reasonable assurance level according to standards developed by the Public Company Accounting Oversight Board.”).(go back)

45See, e.g., Hester Peirce, Commissioner, SEC, Statement on the IFRS Foundation’s Proposed Constitutional Amendments Relating to Sustainability Standards (July 1, 2021), https://www.sec.gov/news/public-statement/peirce-ifrs-2021-07-01 (highlighting concerns with attempts to conflate financial reporting and the broader, less objective category of sustainability reporting).(go back)

46See, e.g., Alternative Investment Mgmt. Assoc. & Alternative Credit Council, Comment Letter on Climate Change Disclosures, 4 (July 5, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-9032601-246143.pdf (“There is considerable flexibility in how Scope 3 emissions are reported under the GHG Protocol. It is not uncommon to use rough estimates and imperfect proxies, and then seek to improve reporting over time.”); Sun Life, Comment Letter on Climate Change Disclosures, 2 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916245-245017.pdf (“Some industries may require their own industry-specific reporting requirements for Scope 3 emissions given how challenging it would be to create and apply one common set of requirements in a fair and effective manner to all participants.”); Retail Industry Leaders Assoc., Comment Letter on Climate Disclosures, 7-8 (June 12, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8911533-244349.pdf (explaining the challenges of retailers in calculating Scope 3 emissions related to their supply chain, transportation and distribution services, and consumers’ use of products sold by the retailer and end of life for such products and urging the SEC to not require disclosure of Scope 3 emissions). See also Managing Climate Risk in the U.S. Financial System: Report of the Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee of the U.S. Commodity Futures Trading Commission, 62 (Sept. 9, 2020) (“Existing estimation methods present significant challenges and regulators should encourage the market to develop a more consistent way of measuring and reporting Scope 3 emissions across sectors where they are material and relevant.”).(go back)

47See, e.g. Ceres, Comment Letter on Climate Change Disclosures, 9 n.32 (June 10, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-245664.pdf (“Few companies have disclosed the extent to which their net zero ambitions rely on carbon credit purchases or actions outside of their value chains (i.e. offsetting emissions) versus avoiding or reducing emissions within their own value chains. A lack of standards for net zero targets makes it difficult to assess the legitimacy of these commitments in terms of their contribution to the global goal to limit warming to 1.5 °C.”); Climate Governance Initiative, Comment Letter on Climate Change Disclosures, 5 (June 12, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8911583-244360.pdf (“In order for [disclosures] to be comparable, it is necessary for the Commission to define a single common methodology for … valuing carbon offsets.”).(go back)

See also Race to Zero: How Companies are Deploying Decarbonization Strategies, Exchanges At Goldman Sachs (July 13, 2021), https://www.goldmansachs.com/insights/podcasts/episodes/07-13-2021-decarbonization.html (discussing debate around carbon offsets).

48Greenhouse Gas Reporting Program (GHGRP), Environmental Protection Agency, https://www.epa.gov/ghgreporting (last visited July 20, 2021).(go back)

49See e.g., Climate Risk Disclosure Lab, Comment Letter on Climate Change Disclosures, 6 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915583-244824.pdf (requesting the SEC to mandate disclosure of Scope 1, Scope 2, and if appropriate, Scope 3 emissions “for all companies”); Nia Impact Capital, Comment Letter on Climate Change Disclosures, 2-3 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915589-244827.pdf (requesting disclosure on data “related to a company’s primary, secondary, and tertiary climate impacts,” and stating belief that “all companies should have a climate reporting requirement”); Climate Advisers, Comment Letter on Climate Change Disclosures, 5 (June 13, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915614-244869.pdf (stating that GHG “emissions should become a mandatory reporting requirement for all companies”).(go back)

50Mirova, Comment Letter on Climate Change Disclosures, 3 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8915609-244845.pdf.(go back)

51See, e.g., Environmental impact of chocolate, European Commission Speech Repository (Jan. 22, 2020), https://webgate.ec.europa.eu/sr/speech/environmental-impact-chocolate (running through a series of depressing facts about cocoa production and asking somewhat hopelessly: “Are there any ways that chocoholics such as myself and maybe even you can continue to eat chocolate without feeling horrendously guilty all the time?”). See also Friends of the Earth, Comment Letter on Climate Change Disclosures, 3 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8907267-244247.pdf (explaining how the production of cocoa contributes to climate change).(go back)

52See Austrian World Summit 2021- Greta Thunberg Speech, YouTube (Jul. 2, 2021), https://www.youtube.com/watch?v=m6eQwAi2U18.(go back)

53See e.g., Americans for Financial Reform Education Fund & Public Citizen, Comment Letter on Climate Change Disclosures, 1 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8914377-244688.pdf (“Issuers should disclose itemized expenditures for both direct and indirect election spending and lobbying including payments to trade associations, politically active nonprofits, and party committees.”); Confluence Philanthropy, Comment Letter on Climate Change Disclosures, 8 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8916187-244979.pdf (same); Interfaith Center on Corporate Responsibility, Comment Letter on Climate Change Disclosures, 26 (June 14, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8936617-245648.pdf (“Companies should be required to disclose itemized expenditures for both direct and indirect election spending and lobbying including payments to trade associations, politically active nonprofits, and party committees.”).(go back)

54Amanda M. Rose, A Response to Calls for SEC-Mandated ESG Disclosure, 98 Wash. U. L. Rev. (forthcoming 2021), at 24-25, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3805814#.(go back)

55See Transcript, Meeting of the SEC’s Asset Management Advisory Committee, (Mar. 19, 2021) at 41-42, https://www.sec.gov/files/amac-031921-transcript.pdf (remarks by Yafit Cohn, Vice President, Chief Sustainability Officer and Group General Counsel, The Travelers Companies, Inc.) (expressing concern that “a very small group of like-minded individuals would be in a position to impact social change on a mass level without the benefit of debate or the checks and balances that are built into our democratic framework” and suggesting that “we all need to pause and think deeply about the potential impact on our democratic structure if the corporation is used to engineer social change”).(go back)

56See, e.g., European Commission, Questions and Answers: Taxonomy Climate Delegated Act and Amendments to Delegated Acts on Fiduciary Duties, Investment and Insurance Advice (Apr. 21, 2021), https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_1805 (“The EU Taxonomy is part of the EU’s overall efforts to reach the objectives of the European Green Deal and make Europe climate-neutral by 2050. It is a robust, science-based transparency tool to help companies and investors make sustainable investment decisions. The Taxonomy Delegated Act agreed today introduces clear performance criteria for determining – within each sector covered – which economic activities make a substantial contribution to the Green Deal objectives. These criteria create common ground for businesses and investors, allowing them to communicate about green activities credibly and help them to navigate the transition to sustainability.”); European Commission, Proposal for a Corporate Sustainability Reporting Directive, (April 21, 2021), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52021PC0189&from=EN (“The [Corporate Sustainability Reporting Directive] will also improve the allocation of financial capital to companies and activities that address social, health, and environmental problems.”).(go back)

57See, e.g., BlackRock, Comment Letter on Climate Change Disclosures, 3 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8906794-244146.pdf (“We believe it is essential to work towards a single, globally applicable, mandatory disclosure framework and set of standards.”); Ernst & Young, Comment Letter on Climate Change Disclosures, 4 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8906915-244218.pdf (“[W]e support the SEC’s engagement with global standard setting that works toward a goal of a single set of global standards for ESG reporting for investors while recognizing and addressing differences that may be unique in the US markets.”). See also Janet Yellen, Remarks to the Institute of International Finance, Press Release, U.S. Dept. of the Treasury (Apr. 21, 2021), https://home.treasury.gov/news/press-releases/jy0139 (“We are closely following progress of and support the International Financial Reporting Standards Foundation establishing a Sustainability Standards Board that will focus first on developing a climate disclosure standard.”).(go back)

58See Janet Yellen, Remarks to the Institute of International Finance, Press Release, U.S. Dept. of the Treasury (Apr. 21, 2021), https://home.treasury.gov/news/press-releases/jy0139 (discussing efforts, including addressing improving climate disclosures, to drive public and private capital to green investments as part of a “whole-of-government approach to aggressively tackle climate change”).(go back)

59For a discussion of how poorly financial regulators and climate policy mix, see John Cochrane, Senior Fellow, Hoover Institution, Testimony before the Senate Committee on Banking, Housing, and Urban Affairs (Mar. 18, 2021), https://www.banking.senate.gov/imo/media/doc/Cochrane%20Testimony%203-18-21.pdf.(go back)

60Michael Shellenberger, Apocalypse Never: Why Environmental Alarmism Hurts Us All (Harper Collins, 1^st ed. 2020).(go back)

61Some commenters have recommended this type of approach. See, e.g., Morrison & Foerster, Comment Letter on Climate Disclosures, 4 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8911364-244302.pdf (“welcom[ing] guidance that encourages registrants to focus on climate and ESG in identifying material risks and to discuss such risks as already required by SEC rules”); Society for Corporate Governance, Comment Letter on Climate Disclosures, 3 (June 11, 2021), https://www.sec.gov/comments/climate-disclosure/cll12-8914283-244663.pdf (“welcom[ing] updated or additional interpretive guidance regarding topics and considerations for companies to evaluate when identifying material information regarding climate change”).(go back)

62Jay Clayton, Chairman & William Hinman, Director of Division of Corporate Finance, The Importance of Disclosure- For Investors, Markets and Our Fight Against Covid-19 (Apr. 18, 2021), https://www.sec.gov/news/public-statement/statement-clayton-hinman; Jay Clayton, Chairman & Rebecca Olsen, Director of Office of Municipal Securities, The Importance of Disclosure for our Municipal Markets (May 14, 2020), https://www.sec.gov/news/public-statement/statement-clayton-olsen-2020-05-04.(go back)

63See, e.g., Hester Peirce, Statement on the Staff ESG Risk Alert (Apr. 12, 2021), https://www.sec.gov/news/public-statement/peirce-statement-staff-esg-risk-alert (“The SEC’s role is not to assess whether any particular strategy is a good one, but to ensure that investors know what they are getting when they choose a particular adviser, fund, strategy, or product.”).(go back)