Bradley partner Elisha Kobre was quoted in a Texas Lawbook article discussing the U.S. Securities and Exchange Commission’s long-anticipated draft rulings for when publicly traded companies need to disclose information about the impact that climate change may have on their businesses and their investors.
Kobre, who has monitored the SEC’s climate change proposals, was asked to review the SEC’s report and provide his analysis.
“The roughly 500-page proposed new SEC rule titled ‘The Enhancement and Standardization of Climate-Related Disclosures for Investors,’ if adopted, would be a considerable expansion of the SEC’s disclosure regime and would impose significant costs on filers not fully acknowledged in the Proposed Rule. The proposed rule requires climate-related disclosures that appear to go beyond what a reasonable investor would consider “material.” Material climate-related information already needs to be disclosed under a host of other SEC regulations. The Proposed Rule goes far beyond that. As pointed out by one of the SEC Commissioners, many companies have expressly told the SEC-in response to prior requests by the SEC’s Division of Corporate Finance for greater disclosure in this area-that information that would be required under the Proposed Rule was immaterial and therefore need not be included. In that same Commissioner’s words: ‘The Commission proposes today to require companies to pull into Commission filings much of this non-investor-oriented information that is either immaterial or keyed to a distended notion of materiality that seems to turn on an embellished guess at how the company affects the environment.’
As importantly, depending on the nature of their business, some companies have more to disclose in terms of climate-related issues, and some have less. The Proposed Rule seeks to impose a level of uniformity of disclosure that doesn’t seem to take this diversity into account. As to costs, the Proposed Rule is based, in large part, on the ‘Task Force on Climate-Related Financial Disclosures’ (TCFD) Framework developed by the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system. But many of the filers that will be required to comply with the Proposed Rule have never encountered the TCFD or, if they have, pick and choose elements of the TCFD framework to follow.
Moreover, under the proposed rule, a large number of filers will be required to disclose, as so-called ‘Scope 3 emissions’ data, indirect Greenhouse Gas emissions ‘which occur in the upstream and downstream activities of a registrant’s value chain.’ These include a breathtakingly wide-range of difficult to ascertain-or perhaps even unknowable-emissions, including those attributable to goods and services that the registrant acquires, employee business travel and commuting, the use of the registrant’s products, and investments made by the registrant. Complying with the complex and-to many companies-unfamiliar framework of the TCFD, in the face of the significant uncertainty of estimating upstream and downstream emissions data, is likely to impose significant costs on filers.”
The original article, “SEC Issues Draft Climate Change Disclosure Requirements — Updated,” appeared in Texas Lawbook on March 22, 2022. (login required)