Apr. 27, 2021
To whom it may concern, In light of demand for climate change information and questions about whether current disclosures adequately inform investors, the SEC has requested public input from investors, registrants, and other market participants on climate change disclosure. As an asset manager based in Europe and buying European and Global equities and fixed-income instruments, we would like to share our thoughts in the below. Hoping this helps, we remain available for any further questions. Kind regards, Emmanuelle Questions How can the Commission best regulate, monitor, review, and guide climate change disclosures in order to provide more consistent, comparable, and reliable information for investors while also providing greater clarity to registrants as to what is expected of them? Where and how should such disclosures be provided? Should any such disclosures be included in annual reports, other periodic filings, or otherwise be furnished? One can argue for compulsory disclosures to be similar to what EU is proposing. Scope 3 sounds like the truly meaningful level but the reporting burden is huge for companies. What are the advantages and disadvantages of permitting investors, registrants, and other industry participants to develop disclosure standards mutually agreed by them? Should those standards satisfy minimum disclosure requirements established by the Commission? How should such a system work? What minimum disclosure requirements should the Commission establish if it were to allow industry-led disclosure standards? What level of granularity should be used to define industries (e.g., two-digit SIC, four-digit SIC, etc.)? We believe there should be 1) a common minimum compulsory disclosure of current climate impacts, entirely originated by the SEC, but then also 2) industry-specific disclosure (2-digit SIC in the US terminology). These should also be decided by the SEC in the end, but with maybe more industry input. Format: we believe there should be a compulsory reporting as a section of the annual report (10-K) which can prove particularly powerful as in the US everyone has to follow the same format & content, so it’s that much easier to compare quickly. This compared to yet another additional (or even optional) report with nice pictures. Furthermore, we also believe that management board compensation mechanisms should be fully laid out in the 10-K (generally) and as part of that there should be compulsory disclosure of climate-related targets and what they are worth to management in dollars terms. What are the advantages and disadvantages of establishing different climate change reporting standards for different industries, such as the financial sector, oil and gas, transportation, etc.? How should any such industry-focused standards be developed and implemented? We believe that it makes sense differentiating the industries which all have their specificities. What are the advantages and disadvantages of rules that incorporate or draw on existing frameworks, such as, for example, those developed by the Task Force on Climate-Related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB), and the Climate Disclosure Standards Board (CDSB)?[7] Are there any specific frameworks that the Commission should consider? If so, which frameworks and why? We believe that it would definitely be helpful to have an alignment with the already existing climate reporting framework (in the UK: TCFD) and rest of the EU SASB. What is the best approach for requiring climate-related disclosures? For example, should any such disclosures be incorporated into existing rules such as Regulation S-K or Regulation S-X, or should a new regulation devoted entirely to climate risks, opportunities, and impacts be promulgated? Should any such disclosures be filed with or furnished to the Commission? To us incorporating climate-related disclosures in already existing financial reporting is the best approach: both for the message sent to companies (environment deeply enshrined into financials) and for ease of use. What are the advantages and disadvantages of developing a single set of global standards applicable to companies around the world, including registrants under the Commission’s rules, versus multiple standard setters and standards? If there were to be a single standard setter and set of standards, which one should it be? What are the advantages and disadvantages of establishing a minimum global set of standards as a baseline that individual jurisdictions could build on versus a comprehensive set of standards? If there are multiple standard setters, how can standards be aligned to enhance comparability and reliability? What should be the interaction between any global standard and Commission requirements? If the Commission were to endorse or incorporate a global standard, what are the advantages and disadvantages of having mandatory compliance? Advantage: better comparability of climate information across the world. Probably better quality as everyone can focus on the same reporting standards and develop the adequate monitoring tool to capture the information. Disadvantage: less diversification. If we miss something within the climate standards requested, then the entire “world” will miss that information as well. The standards requested must make sure all necessary data is being requested. We might challenge the information less. How should disclosures under any such standards be enforced or assessed? For example, what are the advantages and disadvantages of making disclosures subject to audit or another form of assurance? If there is an audit or assurance process or requirement, what organization(s) should perform such tasks? What relationship should the Commission or other existing bodies have to such tasks? What assurance framework should the Commission consider requiring or permitting? An audit would definitely provide more assurance that the information shared to investors is reliable. As this is a new process for everyone, this will also help companies improve the quality of their reporting over time. We would recommend different audit organisations from different countries, each of them conducting their audits in another country than their HQ country – to ensure independence and avoid any potential conflicts of interest. Should the Commission consider other measures to ensure the reliability of climate-related disclosures? Should the Commission, for example, consider whether management’s annual report on internal control over financial reporting and related requirements should be updated to ensure sufficient analysis of controls around climate reporting? Should the Commission consider requiring a certification by the CEO, CFO, or other corporate officer relating to climate disclosures? The CEO/CFO could bear the responsibility for the climate disclosures published. This would highlight the importance of this reporting and ensure the reporting is taken seriously across the firm. What are the advantages and disadvantages of a “comply or explain” framework for climate change that would permit registrants to either comply with, or if they do not comply, explain why they have not complied with the disclosure rules? How should this work? Should “comply or explain” apply to all climate change disclosures or just select ones, and why? The “explain” firms will be penalised by investors if not publishing the information. It is therefore not in their benefit to give the possibility to only explain. We would recommend making the climate information be mandatory for all, regardless of the size/ industry/ HQ. What climate-related information is available with respect to private companies, and how should the Commission’s rules address private companies’ climate disclosures, such as through exempt offerings, or its oversight of certain investment advisers and funds? We believe that requirements shall be the same for private and for public firms. In addition to climate-related disclosure, the staff is evaluating a range of disclosure issues under the heading of environmental, social, and governance, or ESG, matters. Should climate-related requirements be one component of a broader ESG disclosure framework? How should the Commission craft climate-related disclosure requirements that would complement a broader ESG disclosure standard? How do climate-related disclosure issues relate to the broader spectrum of ESG disclosure issues? It would be very useful to see climate-related disclosure be enshrined within a broader ESG reporting. We see climate-related information as a major component of the ”E” pillar of ESG issues. If it is a key priority to gain more insights on climate-related matters, we also need to have the full picture and understand the dynamics between having a sound climate-related strategy and see how this works together with the G and S pillars within a given company. Emmanuelle Haack | Compliance and ESG Officer Alken Asset Management