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

I write in support of your proposed climate risk disclosures. To frame my comments, it is useful to summarize what the climate risk disclosure rule would require registrants to disclose:

• the firm’s governance of climate-related risks and relevant risk management processes;
• how any climate-related risks identified by the firm have had or are likely to have a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term;
• how any identified climate-related risks have affected or are likely to affect the firm’s strategy, business model, and outlook; and
• the impact of climate-related events and transition activities on the line items of a registrant’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

My support is based on my assessment of the costs and benefits of the proposal. Let us start with the costs.

1. Compliance costs are not a significant portion of market capitalization

On page 390 of the proposal, the SEC estimates costs in the first year of compliance to be around $640,000 and annual costs in subsequent years to be $530,000 for larger companies. On page 399, the SEC estimates assurance costs for large companies to be around $75,000 to $145,000. A well-done academic paper by Alexander et al. (2013) estimated the average annual costs of complying with section 404(b) for accelerated filers at $1.2 million.

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