Climate Advisers’ S.E.C. Comment on Climate Transparency – Recommendations to Protect Investors

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The U.S. Security and Exchange Commission’s (SEC) proposed rules for expanded climate transparency is a strong step forward in ensuring greater transparency of climate-related financial risks. The alignment between the proposed ruling and widely accepted frameworks like the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and the Greenhouse Gas (GHG) Protocol would provide meaningful progress for investors and increase standardization and comparability among climate-related financial disclosures. (Release No. 33-11042, March 21, 2022). 

Climate Advisers recently submitted our comment letter supporting this bold and thoughtfully framed proposal and recommended several modifications to the proposed rules. Our recommendations include stronger mandated emission disclosures that would more effectively meet the specific needs of investors exposed to climate-related financial risks from deforestation. 

Most notably, we recommend an economy-wide approach that incorporates global supply chain emissions. A holistic approach is particularly important in the forest and land use sector, since many US companies rely on tropical commodities with high risk of links to deforestation, human rights abuses, and land disputes with Indigenous People and traditional communities.

Read below for our main recommendations and find our full comment using the download button below for a deeper analysis on the role of the forest, food, and land sector in climate-related financial risk and specific answers to questions posed by the SEC.

Scope 3 Disclosure

Disclosure of Scope 3 emissions should be mandatory for all registrants, based on the best available data and methodologies, rather than as proposed, only if material. In the alternative, disclosure of all Scope 3 emissions of a registrant’s upstream supply chain should be required. If not required for all issuers, disclosure of Scope 3 emissions should be mandatory for all sectors at risk of deforestation in its supply chains, using the CDP definition of high tropical deforestation risk commodities and countries. 

This is necessary because emissions from deforestation are relevant to both current year emissions and future carbon storage capacity. At a minimum, disclosure of Scope 3 emissions should be mandatory in industries where Scope 3 emissions are at least 40 percent of the registrant’s GHG emissions, unless a lesser percentage would be material to a particular issuer given that issuer’s strategy, business model, location of and/or transition risks. These comments predominantly relate to the Commission’s questions 98 through 135.

Identification of Nature-Related Dependencies and Financial Risks

The SEC should require companies to identify and disclose their nature-related dependencies and the financial risks arising from those dependencies because the collapse of natural ecosystems, in turn, creates significant climate-related financial risks. The emerging Taskforce on Nature-related Financial Disclosures framework measures nature-related financial risks, including those that exacerbate climate-related financial risks, and it also aligns closely with the TCFD in its coverage of strategy, governance, risk management, metrics, and targets when assessing the potential impact of nature-related financial risks.

Industry Specific Guidance

The SEC should develop industry-specific guidance for climate disclosure in the forest, food, and land sector, much as it has done previously in oil and gas; banking; real estate; and insurance. Regulations that do not explicitly mandate industry-specific disclosures for the forest, food, and land sector would be incomplete and ineffective in protecting investors because:

  • Deforestation both generates GHG emissions in the current year and reduces carbon storage capacity in future years, so sectors with high deforestation risk have an outsized impact on climate change. 
  • With the vast majority of GHG emissions generated abroad in regions at high risk of deforestation, the forest, food, and land sector puts investors at a high risk of funding activities linked to illegality, environmental damage, climate change impacts, human rights abuses, and more.