Statement of Essential Principles for SEC Climate Change Disclosure Rulemaking
We are investors with over $4 trillion in assets under management and advisement (as of June 16, 2022), corporations, and non-profit organizations who support climate change disclosure rulemaking by the U.S. Securities and Exchange Commission. We believe that disclosure of the material and systemic risks of climate change will help companies and investors to understand, price, and manage climate risks and opportunities. These activities are at the core of efficient securities markets and are essential to ensuring a just and thriving economy that works for all people and communities.
Climate change poses a systemic risk to the economy. The impacts of the climate crisis on our lives and our livelihoods are worsening at a dramatic rate. These include physical risks to real assets from climate-fueled weather events and transition risks posed by regulatory, technology, economic, and litigation changes during the shift to a net-zero economy. The risks can combine in unexpected ways, with serious, disruptive impacts on asset valuations, global financial markets, and global economic stability.
Furthermore, climate change poses a variety of material risks to companies of all sizes in all industries across our nation. The costs to companies of inaction may be dire in the medium and long term, and many of those impacts, such as those from floods, fires, droughts, and hurricanes, are already being incurred in the short term. While there will be a cost for compliance with SEC climate disclosure rules, it is far less costly to companies and their investors than ignoring the risk.
Climate risk disclosure would bring significant benefits to investors and companies. They need access to consistent, comparable, and reliable information at scale to fully assess their risk exposure and to navigate the path to a net-zero future. The current state of climate change disclosure does not meet our needs. Companies and investors need comprehensive, decision-useful data from all enterprises facing material climate change risks.
We also call on the SEC to take into consideration the broader impacts of climate change as a 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.
We appreciate the SEC's proposed rule, called, Enhancement and Standardization of Climate-Related Disclosures for Investors. We believe that climate change disclosure rules from the SEC should, at minimum, include the following elements:
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Based on the TCFD: The SEC’s work should be based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) which has been endorsed by hundreds of companies and investors globally.
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Industry-specific metrics: SEC rulemaking should include industry-specific metrics because material climate risks manifest in different ways by industry. These metrics should build on existing standards in common use by investors and companies. Identifying such industry-specific metrics would also allow for comparable disclosures.
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Governance and strategy disclosure: Disclosure rules should provide insights into companies’ climate risk exposure, strategies, and scenario planning.
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Emissions disclosure: Disclosure rules should include Scope 1, 2, and 3 greenhouse gas emissions, which are needed to assess the full range of climate change risks facing companies.
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Inclusion in financial filings: Material climate disclosures, including discussion on risk exposure and business opportunities, impacts on strategy, and emissions reporting and management, should be included in annual, quarterly, and other appropriate SEC filings.
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Regular updates: Climate change impacts, scientific consensus around climate impacts and capital market responses to climate risks are rapidly evolving. SEC rules should be updated regularly in response to these developments, and they should include the development or adoption of new metrics.
The undersigned organizations and individuals support SEC climate disclosure rulemaking in alignment with these principles, to ensure consistent, comparable, and decision-useful information. We sincerely appreciate the Commission’s consideration of our views, and we look forward to working with you. We urge the SEC to act urgently in response to the growing threats of the climate crisis to markets and the economy.