April 18, 2022
I am a fan of the SECs newly proposed rule to require a domestic or foreign registrant to include certain climate-related information in their registration statements and periodic reports. As someone in financial services under the SECs regulation, I see investors that prefer to invest in companies that prioritize green initiatives or those that look for opportunities to promote sustainability. From a customer-facing standpoint, this disclosure would make it easier to identify these companies to potential investors to help cater their investment strategy to their preference. This in turn can further incentivize companies that may already be taking advantage of tax credits for sustainability initiatives. Furthermore, identifying how climate related risks can have a material impact on operations can help other companies and investors to develop better risk mitigation strategies if they find themselves in the same geographic location or exposed to the same environmental risks.
While the rule amendments propose that certain climate-related financial statement metrics and related disclosures be included in a note to its audited financial statement, I think auditing by a third-party could benefit the proposed ruling. Its admirable for companies to propose and follow through with these rules but requiring climate compliance auditing from a third-party would help improve the proposed rule in my opinion. I also think it would be beneficial to maintain a documentation of what companies are complying with what percentage of their proposed climate mitigation plan. This may be more challenging as it would require a quantifiable method to determine if a company is complying or if they are falling short but a document or database showing what companies are in compliance can go a long way in helping investors determine who they want to invest in.
I think more clarification could be provided around how indirect emissions from upstream and downstream activities in the registrants value chain will be documented. This could be an area that is left up to interpretation as to what constitutes an indirect emission from an activity in their value chain. Just as an example, is a company responsible for the emissions from the vehicle transporting their goods even though theyve contracted out to a third-party? I believe more clarification in this area would help not only the SEC, but also companies attempting to provide this information in their financial disclosures.