The Proposed SEC Climate Disclosure Rule: A Comment from the U.S. Chamber of Commerce

Tom Quaadman is Executive Vice President and Evan Williams is Director of the Center for Capital Markets Competitiveness, both at the U.S. Chamber of Commerce. This post is based on a comment letter submitted by the U.S. Chamber of Commerce to the U.S. Securities and Exchange Commission regarding the Proposed SEC Climate Disclosure Rule.

Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita; and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy – A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.

This post is based on a comment letter submitted to the SEC regarding the Proposed SEC Climate Disclosure Rule by the U.S. Chamber of Commerce. Below is the text of a segment of the letter with minor adjustments to eliminate the correspondence-related parts.

The U.S. Chamber of Commerce appreciates the opportunity to comment on the proposed rules (the “Proposed Rules”) of the Securities and Exchange Commission (“SEC” or “Commission”) governing climate and the environment in Release No. 33-11042 (the “Proposing Release”). Combating climate change requires citizens, governments and businesses to work together. American businesses play a vital role in creating innovative solutions and reducing greenhouse gases (“GHGs”) to protect our planet. The SEC, working in coordination with other government agencies whose primary responsibility it is to protect the environment, also has a role to play to the extent climate risk implicates the SEC’s tripartite mission of investor protection, maintaining fair, orderly and efficient markets, and facilitating capital formation.

The Chamber believes that policy solutions addressing climate change should serve the goal of reducing emissions as much and as quickly as possible based on what the pace of innovation allows and the feasibility of implementing technical solutions at scale. The Chamber also believes that practical, flexible, predictable and durable market-based solutions and mechanisms are at the core of efforts to address climate risk and are reflected in the actions of the Chamber’s members. Promoting private sector innovation across industry sectors will be central to solving climate change.

The Chamber supports climate policy that includes the disclosure of material information for investors to use, as well as policies that are not distorted or duplicative as a result of overlapping regulations and are not skewed by political interests. U.S. climate policy should recognize the need for action, while maintaining the national and international competitiveness of U.S. industry and commerce and ensuring consistency with free enterprise and free trade principles. Climate policy should also be informed by the best science and observations available and a rigorous assessment of available alternatives, outcomes, and cost-benefit tradeoffs to ensure that the optimal policies are implemented. We must consider the significant progress that the private sector has spurred by committing billions of dollars to research and development that have led to the creation and implementation of innovations that help manage climate risk and accelerate emissions reductions.

We are concerned that the Proposed Rules, when viewed holistically, do not strike the right balance and may, in fact, prove counterproductive by mandating that companies produce extensive amounts of information that is not material, thus obscuring for investors what is most important to making informed voting and investment decisions and creating confusion and misimpressions. This is not consistent with the SEC’s longstanding tripartite mission and its stated goals in issuing the Proposed Rules. Mindful of the SEC’s mission under the federal securities laws, the Chamber submits this comment letter to help the SEC improve the Proposed Rules to better serve the interests of investors and the U.S. capital markets without impeding the progress the business community has already made—and continues to make—in providing climate-related disclosure to investors and in developing strategies and technologies to reduce climate risk and its potential adverse impacts on society.

The Chamber is committed to working constructively with the SEC to develop and ensure an effective, standardized and consistent mandatory disclosure regime under the federal securities laws so that the marketplace has the benefit of material climate-related information that informs investor decision making as investors seek out financial returns. We agree that material climate risks and impacts should be disclosed to investors, and that the Commission’s 2010 climate change interpretive guidance has been instrumental in improving the quantity and quality of disclosures on this topic. However, the current Proposed Rules are vast and unprecedented in their scope, complexity, rigidity and prescriptive particularity, and exceed the bounds of the SEC’s lawful authority as proposed. The Chamber respectfully urges the SEC to address the issues identified below before adopting any final rules.

1. Ground Any Final Rules in Materiality.

As with other areas of disclosure, the traditional and longstanding conception of materiality continues to serve as a critical bedrock in which to ground disclosure requirements to prevent an “avalanche” of information that can disadvantage investors. Basing disclosure mandates in materiality also serves to ensure that the SEC adheres to the purpose that the agency was established to serve, deferring to appropriate parts of government to take the lead on other valid goals and objectives. As the Proposed Rules acknowledge, public companies now disclose significant amounts of information about the actual and potential impacts of climate change on their businesses, and both the quantity and quality of this disclosure has greatly increased over the past decade, and it continues to do so. Voluntary disclosures have been effective in detailing this information, as have existing disclosure mandates, including regarding risk factors and management’s discussion and analysis (“MD&A”). The Proposed Rules should not mandate that companies disclose climate-related information that is not material.

The Chamber believes companies should disclose climate risks when material, and the SEC can provide companies with valuable structure and direction as to how to do so. A consistent theme of this comment letter, however, is that the Proposed Rules are too much, too soon and too inflexible.

Accordingly, any final rules adopted should be grounded in the established understanding of materiality, should be sensitive to the practical difficulties of meeting certain proposed disclosure requirements (including with respect to applicable compliance deadlines), and should be otherwise tailored to achieve an appropriate objective consistent with the SEC’s mission and authority without potentially causing unnecessary adverse consequences, including for investors. As a result, any regulatory requirements the SEC ultimately does adopt should be revised from the current Proposal to reflect the alternatives presented below to more effectively advance the SEC’s mission and provide investors with reliable, material information that assists them in making informed investment and voting decisions.

If finalized in their current form, the Proposed Rules would create significant implementation problems due to their massive scope and prescriptive particularity, centering around the inherent complexity in collecting required data and completing the calculations and analysis necessary to make the proposed disclosures. It is difficult to recall any other instance in which the SEC has mandated disclosures where there are so many significant uncertainties, data limitations and practical difficulties in developing the required information. A more streamlined approach that is principles-based, less prescriptive, and qualified by commonly-understood and traditionally-applied principles of materiality will produce a better outcome for the registrants that must prepare the disclosure and the investors who will consume it, leading to a rule that more effectively advances the SEC’s mission and at a much lower cost than the current Proposal.

2. The SEC Should Not Finalize Financial Reporting Rules Covering Climate Change.

Proposed Article 14 of Regulation S-X is largely unworkable, and such disclosures are not likely to be material or useful for investors. The proposed requirements represent transformative rulemaking from the standpoint of financial reporting and disclosure controls, processes and procedures, but are not based on a legislative mandate and cannot be complied with using incremental builds on existing controls, processes and procedures given the vast and unprecedented scope, granularity, complexity and prescriptiveness of the Proposed Rules. Furthermore, the Proposed Rules require untold estimates, assumptions and judgments against the backdrop of significant data limitations and speculative impacts. The rigid and detailed mandates of proposed Article 14 are in stark contrast to the flexible principles regarding disclosure of climate-related financial impacts contemplated by TCFD and extend far beyond what is warranted to respond to what investors have called for, particularly in light of the high costs of compliance—costs that will be even higher to the extent these disclosures are subject to the financial statements audit. We urge the SEC not to adopt the component of the Proposed Rules for GAAP footnote disclosure of climate-related financial metrics. The SEC should instead defer to the Financial Accounting Standards Board (“FASB”) for setting GAAP. To the extent the SEC nonetheless moves forward in a final rule with financial reporting requirements, such disclosures should be disclosed pursuant to existing MD&A disclosure requirements rather than be included in a registrant’s financial statements. Further, if the SEC ultimately does mandate disclosures in the financial statements, materiality should be the standard for determining what must be reported instead of the 1% threshold as proposed by the Commission.

3. Scope 3 Emissions Reporting Should Be Entirely Voluntary.

Scope 3 emissions reporting should not be mandated, because of the myriad difficulties that the SEC itself recognizes in the Proposing Release. These difficulties compromise the usefulness of Scope 3 emissions disclosure, particularly when disclosed on the scale that the Proposed Rules contemplate. In its current state, when viewed in the aggregate, the nature and amount of estimation required to calculate Scope 3 emissions renders that information not material for investors. Instead of mandating Scope 3 emissions disclosures as the Proposed Rules do, the SEC should allow companies to disclose Scope 3 emissions on a voluntary basis as each company determines is appropriate. To help address the significant issues with Scope 3 emissions reporting that make mandating such reporting problematic, the Chamber stands ready to collaborate constructively to help facilitate discussions among the SEC, the EPA, the business community and other stakeholders to continue developing workable practices and methodologies that could produce consistent, comparable, and reliable Scope 3 emissions reporting on a practicable and achievable basis.

4. Permit a More Reasonable Compliance Period and Allow for a Reporting Deadline Later in the Year for Emissions Data.

The Commission should, in any final rules, extend the initial compliance deadlines by at least two years to provide the issuer community sufficient time to develop systems, controls, and audit methodologies over whatever new disclosures are ultimately adopted. This additional time will allow the SEC to better promote more reliable disclosures than a hurried compliance period. In addition to the initial compliance deadline being too soon as proposed, the timing of disclosure during the annual reporting process also presents compliance challenges.

Much of the emissions-related information in the Proposed Rules would be required in Form 10-K. Particularly for companies with a calendar fiscal year, this deadline is unreasonably tight, and for most companies (even large accelerated filers) there will be significant challenges in providing emissions-related disclosures by the required deadlines. Any perceived benefit associated with disclosures being made at the same time as a company’s annual report is outweighed by the benefit of allowing companies more time so that they have a realistic opportunity to prepare disclosures that will, in turn, be more reliable and useful to investors. In short, investors benefit when registrants have the time and ability to collect the requisite data and subject the information to an effective disclosure process and set of controls and procedures. The Proposing Release acknowledges as much by permitting registrants to make use of fourth-quarter estimates under certain circumstances under proposed Regulation S-K Item 1504(e)(4)(i) as long as the registrant promptly discloses in a subsequent filing any material difference between the estimate used and the actual, determined GHG emissions data for the fourth fiscal quarter. While we appreciate the Commission’s effort to allow an accommodation here, its proposed approach is not workable.

Indeed, the SEC’s need to allow companies to use a fourth quarter estimate to meet their GHG emissions disclosure obligations is not only an accommodation the SEC has never needed to make before, but it underscores that the SEC recognizes that many companies simply will not be able to meet the emissions disclosure deadline for a variety of reasons. For example, key emissions data needed to complete the required audit may not arrive until it is too close to the deadline to be prepared for external assurance and made subject to such assurance. Moreover, including data based on these types of estimates, subject to future correction when the actual data is available, would pose significant challenges for any third party auditor of the resulting disclosure and could provide fodder for opportunistic third parties, such as politically-motivated activists, not motivated by the best interests of investors. This accommodation is not adequate to address the risk of being second-guessed and the attendant liability. It also does not help to ease potential investor confusion—if anything, use of a fourth-quarter estimate that is subsequently updated will likely spawn investor confusion and creates liability risk.

Additionally, accelerated and large accelerated filers with a calendar fiscal year would be required to make emissions disclosures under the Proposed Rules before the March 31 EPA reporting deadline for similar information. The March 31 EPA deadline is followed by an EPA comment period whereby disclosures are often modified in response to EPA comments, and these disclosures often do not become final until the fourth quarter of the calendar year.

Rather than front-running the EPA reporting process or providing the unusual workaround that permits disclosure of GHG emissions on the basis of a quarterly estimate, the Commission should delay the reporting deadline for emissions information to later in the year. There is already a basis for this concept within the SEC’s rules. Form SD, for example, is not due until May 31. Therefore, the Commission should delay the GHG emissions reporting deadline to later in the year to avoid the need for estimates and updates to those estimates and the duplication of reporting information that is the same or similar as that reported to environmental regulators like the EPA. If the Proposed Rules are not modified to allow for a later reporting deadline, it is imperative that the SEC coordinate with the EPA to ensure consistency between the reporting regimes. To accommodate companies with different fiscal years and to allow sufficient time to collect the necessary data for reporting, any disclosure on emissions (including scope emissions) should be due no earlier than 180 days after the due date for Form 10-K for that particular registrant. If a company files emissions reports with another regulator, such as the EPA, and that regulator requires any amendment or modification of such emissions data, then the affected company should be permitted to amend its SEC disclosure without penalty or exposure to additional liability.

5. Provide for Reporting Outside the Form 10-K and Form 10-Q.

To the extent climate-related information is responsive to an existing disclosure mandate under Regulation S-K (e.g., MD&A or risk factors) it should continue to appear in Form 10-K and Form 10-Q, as applicable. However, if the Commission proceeds with requiring a separate set of bespoke climate disclosures along the lines of proposed Subpart 1500 of Regulation S-K, the required information is better suited for disclosure outside the Form 10-K and Form 10-Q. Climate disclosure of the nature and magnitude that the Proposing Release contemplates is of a different character than traditional financial and operational information that is material, whether forward-looking or historical. Among the many benefits of disclosure outside Form 10-K and Form 10-Q is that it will signal to investors that the disclosure is of a different tenor than other information that has long been required under the federal securities laws, which will work to mitigate the potential for investor confusion and distraction as discussed at length below.

6. Scope 1 Emissions Reporting Should Track EPA Regulations.

Where other disclosure systems exist, the SEC should endeavor to reduce duplication and the costs therein that are ultimately borne by investors. Elsewhere in this letter we discuss the practical challenges and shortcomings of mandated Scope 3 reporting at the current time, and as a result express the view that Scope 3 reporting should continue to be voluntary. Unlike Scope 3, however, Scope 1 reporting is already required for many issuers under EPA rules, and EPA disclosure requirements are an appropriate basis for any Scope 1 requirements adopted by the SEC. In the Proposing Release, the SEC states that “GHG emissions data compiled for the EPA’s own GHG emissions reporting program would be consistent with the GHG Protocol’s standards, and thus with the proposed rules,” and therefore “a registrant may use that data in partial fulfillment of its GHG emissions disclosure obligations pursuant to the proposed rules.”

The SEC should not develop its own Scope 1 emissions reporting standards since the EPA has for years already required reporting on this information. In addition to mitigating potential investor confusion were the information to appear in Form 10-K, this approach would also lead to better alignment between what the SEC proposes to mandate and environmental-related disclosures that public companies already make with the EPA or via other means of reporting.

7. Provide a Transition Period for Prior Years.

The Proposed Rules would require companies to provide GHG emissions disclosure and climate-related financial statements metrics for each year covered by the first annual report when the rules become effective. This requirement does not include a clear transition provision. In other words, even for the companies that have not started voluntarily disclosing any information, precise, quantified disclosure of metrics they have not previously tracked or reported would be required not only for the fiscal year covered by the first annual report under the newly effective reporting regime, but also for the two prior fiscal years. For example, Proposed Rule 14-01 of Regulation S-X would require disclosure for a registrant’s most recently completed fiscal year and for the historical fiscal year(s) included in the registrant’s consolidated financial statements in the applicable SEC filing. The Proposing Release refers to Securities Act Rule 409 and Exchange Act Rule 12b-21 as providing potential relief from the requirement to report on more than one year in the first year reporting is due. Nonetheless, subject to our position (described in detail elsewhere in this letter) that the SEC should not finalize financial reporting rules covering climate change, to the extent the Commission maintains this requirement and finalizes any mandate for retroactive disclosure, a clearer transition period is warranted without reliance on separate SEC rules.

For many companies, even those that have already established some level of voluntary reporting, historical information may only be available at great cost and difficulty and, even then, could be subject to significant uncertainties that would make the disclosure unreliable, if it could be provided at all. The need for third party assurance of this information, which would start as soon as the next year for GHG emissions and in the initial year for the climate-related financial statements metrics, further compounds this difficulty. If the requirements for disclosure around these metrics are maintained in any final rules, they should not apply retrospectively. While companies could be encouraged to provide information, if available, about the retrospective periods, companies should only be required to disclose new information for the year for which the first compliant annual report or other SEC filing is due.

Summary of Key Issues

The remainder of this comment letter expands our discussion of many of the above alternatives and provides additional explanation as to why the totality of the Proposed Rules, as currently structured, are in many important respects unworkable and require further refinement to best serve the SEC’s mission. As discussed more fully below, the Proposed Rules not only should be revised, if adopted, to reflect the above, but also should account for the following key legal, policy and economic considerations to improve them:

  • The SEC has not demonstrated that the sweeping scope of the Proposed Rules as drafted is warranted. The Proposing Release repeatedly cites a demand for climate disclosure from select institutional investors. Although such interests warrant appropriate attention, they do not justify the whole of the Proposed Rules in terms of their combined breadth and prescriptive particularities, especially given the fact that these select investors have not requested all the required information contemplated by the Proposed Rules, nor have they requested it from all companies that are subject to reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Moreover, the Proposing Release is frequently dismissive of the significant climate and environmental disclosures that public companies already make, while at the same time using existing company disclosures to justify their extremely low estimate of the cost to comply with the Proposed Rules. The SEC should take a more tailored approach to disclosure.
  • If adopted, the Proposed Rules would impose weighty obligations unprecedented in the SEC’s history. The Proposed Rules, taken as a whole, would impose a vast and costly new reporting regime on public companies that dwarfs even Sarbanes Oxley implementation costs. They are in stark contrast to other critical disclosure obligations that are focused on financial disclosures, are principles-based and present information in a curated way, as viewed “through the eyes of management.” The Proposed Rules would transform periodic SEC reports from filings that center on the financial and operating performance of companies into filings that, in notable respects, resemble what an environmental regulator might require and, in some cases, already requires.
  • The Proposed Rules exceed the Commission’s statutory The SEC does not have general authority to impose climate- and environmental-focused regulation in the comprehensive fashion contemplated by the Proposed Rules.
  • The Proposed Rules would substantially revise the longstanding and traditional conception of materiality. The Proposed Rules substantially deviate from the longstanding and traditional conception of materiality under the federal securities laws that for decades has advanced the best interests of investors, encouraged capital formation and helped ensure the integrity of our capital markets. The Proposed Rules often call for the disclosure of granular climate-related information that is required to be provided even if such information is immaterial under the standard of materiality the Supreme Court handed down decades ago.
  • The Proposed Rules raise serious constitutional questions. The Proposed Rules raise significant First Amendment issues that must be addressed. The First Amendment imposes important limits on the government’s ability to compel speech, including disclosure mandates under the federal securities laws like those provided for in the Proposed In their current form, the Proposed Rules violate the First Amendment. Further, the Proposed Rules are grounded in a reading of the SEC’s authority that violates the non-delegation doctrine.
  • The Proposed Rules, if adopted as proposed, would result in extensive disclosure of non-material information that is not useful to investors. Putting aside the significant burdens that would be placed on public companies to collect, prepare, and validate the new disclosures the Proposed Rules would compel, there remains substantial doubt that these new requirements will lead to better understanding of the complicated topic they cover. To the contrary, the totality of new, extensive disclosures under the Proposed Rules risk inundating investors with immaterial information and creating unnecessary confusion and misunderstanding, particularly as to the certainty of the disclosures and the meaning of the various mandated new metrics. Moreover, the new disclosure requirements—because of their unprecedented extensive, detailed, and prescriptive nature as compared to any other disclosure requirements under the federal securities laws—would place disproportionate emphasis on climate risk relative to other matters, which would make it harder for investors to discern and use the material information about non-climate related matters contained elsewhere in annual reports and registration statements or even the material climate-related information that companies already disclose in filings. Indeed, it is important to underscore that material climate-related disclosures already are made by companies, including as part of their risk factor and MD&A disclosures.
  • The Proposed Rules, if enacted, would discourage companies from entering or remaining in the public markets. Seeing the vast cost and complexity of the new climate reporting regime, the real potential to divert managerial resources from other elements of the business, including resources needed to implement actions that actually reduce GHG emissions, and the opportunity for increased shareholder activism, many private companies will avoid accessing the public markets, limiting opportunities for retail investors to participate in the next generation of public company value creation. Many existing U.S.-listed public companies are likely to reach a similar conclusion and pursue efforts to exit the U.S. public markets while also avoiding transactional opportunities that could create value for U.S. shareholders, such as potential mergers, if pursuing such opportunities would require them to become subject to SEC-mandated disclosure obligations.
  • The nature and degree of the SEC’s reliance on unregulated standard setters raise concern. Many companies have been guided in their voluntarily reporting of climate-related risks and GHG emissions by the TCFD recommendations and the GHG Protocol. While voluntary reporting under these or other voluntary standards is entirely appropriate, the analysis is different when the SEC transforms voluntary standards into mandatory ones. The Chamber believes that, if the SEC adopts climate-related rules, the TCFD recommendations and the GHG Protocol should be considered and taken into account in preparing the rule. However, the SEC may not rely on TCFD and the GHG Protocol without undertaking a rigorous analysis of their appropriateness as mandatory requirements as compared to voluntary guidelines and frameworks. These organizations were created to address various policy considerations and respond to constituencies beyond those of the U.S. capital markets and investors. The process for third parties developing these voluntary standards is not subject to the rigors of the Administrative Procedure Act, and many of the standards address topics and are intended to achieve objectives far removed from the SEC’s core expertise and authority as a capital markets regulator.
  • The SEC should not impose a GHG emissions attestation The proposed GHG emissions attestation requirement poses significant implementation challenges. Instead of a mandatory assurance regime, GHG emissions attestation should continue to be voluntary.
  • If the SEC mandates Scope 3 disclosures, then it should revise and expand the disclosure safe harbor. While the Chamber is of the view that requiring reporting of Scope 3 emissions would exceed the Commission’s authority, should the SEC mandate their disclosure, then the proposed safe harbor from Scope 3 emissions disclosure liability is too narrowly crafted and does not provide adequate relief. Furthermore, the Commission should employ a meaningful safe harbor not just for Scope 3 emissions disclosures, but rather should provide a meaningful safe harbor to cover the entirety of the disclosure provided in response to any final rules in light of the unique challenges that the SEC itself recognizes companies must overcome to meet the proposed climate-related disclosure obligations.
  • The SEC should extend the effective dates of any final rules. Given the scope and breadth of the Proposed Rules, as well as the new processes, procedures, systems and controls companies will be required to develop to ensure their ability to comply, a significantly longer transition period is needed. To provide a reasonable transition to compliance with any final rules, the Commission should provide for effective compliance dates two years beyond those indicated in the Proposing To accommodate special challenges posed in mergers and acquisitions, the Commission should permit companies to delay reporting on acquired businesses for an additional year from the date of acquisition.
  • The economic analysis in the Proposing Release is incomplete and substantially underestimates compliance costs. As the Commission’s former Chief Economist, James Overdahl, explains in the report attached hereto as Annex A (the “Overdahl Report”), the Commission has failed to adequately assess the existing economic baseline, underestimated and ignored substantial costs of the Proposed Rules, and disregarded marginal costs and benefits, among other significant defects in the Commission’s economic analysis.
  • The compressed comment period has significantly impeded the public’s ability to comment on the Proposed Rules in a thorough way. The Proposed Rules run 140 pages in the Federal Register and pose over 700 discrete questions. Even with a 28-day extension to the public comment period, the comment period duration has not afforded the public sufficient opportunity to study the vast Proposing Release and perform the kind of sophisticated analysis required by a rulemaking of such breadth and complexity. At the same time, the Commission has proposed a litany of other rules, all with similarly brief comment periods that overlap one another, which in total run over 1,000 pages in the Federal Register. The Chamber’s own efforts to gather member feedback while analyzing and responding to the Proposing Release were substantially impeded by the inadequate comment period.

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Outline of Discussion

  1. THE SWEEPING BREADTH, PARTICULARITY AND PRESCRIPTIVENESS OF THE PROPOSED RULES IS NOT WARRANTED.
    1. The SEC has not demonstrated that the sweeping scope of the Proposed Rules as drafted is warranted.
    2. If adopted, the Proposed Rules would impose weighty obligations unprecedented in the SEC’s history.
      1. Compliance with the Proposed Rules would impose significant burdens and costs on registrants.
      2. Climate disclosures should be materiality-focused and principles-based.
      3. The climate-related information required by the Proposed Rules could be provided in response to a number of existing disclosure requirements.
      4. There is potential for misuse of SEC-mandated climate information.
      5. The Proposed Rule seems aligned with implementing the Administration’s climate change goals.
    3. The Proposed Rules exceed the Commission’s statutory authority.
      1. The SEC’s authority is limited to disclosure of information that is financial in nature and necessary for investors to assess a security’s value.
      2. The Proposed Rules are neither necessary nor appropriate for investor protection or the public interest.
    4. The Proposed Rules would substantially revise the longstanding and traditional conception of materiality.
    5. The Proposed Rules raise serious constitutional questions.
      1. The Proposed Rules violate the First Amendment.
      2. The Proposed Rules are grounded in a reading of the SEC’s authority that violates the non-delegation doctrine.
  2. THE PROPOSED RULES WILL LEAD TO SERIOUS ADVERSE CONSEQUENCES IF NOT SIGNIFICANTLY IMPROVED.
    1. The Proposed Rules, if adopted as proposed, would result in extensive disclosure of non-material information that is not useful to investors.
    2. The Proposed Rules, if enacted, would discourage companies from entering or remaining in the U.S. public markets.
  3. THE PROPOSED RULES MUST BE SUBSTANTIALLY REVISED IF ADOPTED.
    1. The nature and degree of the SEC’s reliance on unregulated standard setters raise concern.
    2. The SEC should not create new financial reporting rules covering climate change.
      1. The proposed 1% materiality threshold is unworkable.
      2. Proposed Article 14 presents innumerable implementation difficulties and will result in extensive disclosure of immaterial information.
      3. The SEC should not bypass the traditional FASB standard-setting process.
      4. The climate-related financial statement metrics depart significantly from the TCFD recommendations.
    3. The SEC should not impose a GHG emissions attestation requirement.
      1. The proposed attestation requirements are an unnecessary departure from longstanding practice and pose significant implementation challenges.
      2. Third-party attestation of Scope 1 and 2 emissions adds another costly layer to the proposed reporting requirements.
      3. Attestation should continue to be voluntary.
    4. Scope 3 emissions reporting should be entirely voluntary.
      1. Scope 3 emissions are difficult to identify and accurately quantify and are uniquely uncertain and speculative.
      2. Gathering reliable data to quantify Scope 3 emissions is costly.
      3. The safe harbor provision for Scope 3 emissions disclosures does not provide the relief that is required for companies that would be subject to this reporting requirement.
      4. Scope 3 emissions disclosures are inherently incomparable.
    5. If the SEC mandates Scope 3 disclosures, then it should revise and expand the disclosure safe harbor.
      1. The proposed safe harbor is too narrow.
      2. The scope of Securities Act Rule 409 and Exchange Act Rule 12b-21 should be expanded and clarified with respect to climate-related disclosures.
    6. The SEC should provide a transition period for prior years.
    7. The SEC should permit a more reasonable compliance period and allow for a reporting deadline later in the year for emissions data.
    8. The SEC should permit omission of disclosure by registrants that are wholly-owned subsidiaries of other reporting companies.
    9. The SEC should not require reporting on an organizational boundary basis.
    10. The SEC should extend the effective dates of any final rules.
      1. The Proposed Rules do not allow for sufficient transition time.
      2. The Commission should permit additional transition time for acquired businesses or assets.
  4. THE COST-BENEFIT ANALYSIS IN THE PROPOSING RELEASE IS INADEQUATE TO JUSTIFY THE ENTIRETY OF THE PROPOSED RULES.
    1. The economic analysis in the Proposing Release is incomplete and substantially underestimates compliance costs.
    2. The compressed comment period has significantly impeded the public’s ability to comment on the Proposed Rules in a thorough way.

The complete publication, including footnotes, is available here.

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