Mar. 25, 2022
03/25/2022 by email to rule-comments@sec.gov Commissioner Allison Herren Lee, Securities and Exchange Commission 100 F Street NE Washington, DC 20549-1090 Sub: “The Enhancement and Standardization of Climate-Related Disclosures for Investors” File No: S7-10-22 Dear Commissioner Lee: I am responding to the Commission’s request for comments ref. File No: S7-10-22, “The Enhancement and Standardization of Climate-Related Disclosures for Investors”. I am an Engaged Shareowner at ActiveAllocator Activist Capital Advisors. My report "CLIMATE CHANGE POLICY AND INVESTMENTS: A WALL STREET PERSPECTIVE" (available on Amazon) captures the gestalt of what’s uppermost within policy making and investment circles. Analysis is presented by way 200 charts, graphs, visuals drawing on over 2 million separate data points. It explores 1. The Science; 2. The Economics; 3. The Politics; 4. Mitigation, Adaptation and Government; 5. The Response of Global Financial Markets; 6. Carbon Markets; 7. Policy Solutions by Economic Sector; 8. Other Environmental Issues; and 9. Wall Street Response to Climate Change. In this letter I draw attention to reasons why I do not support the proposal in its entirety as it stands. The core idea behind corporate disclosure is to inform financial investors of risks and opportunities that affect a company's performance and valuation. Enforcing this proposal pushes the SEC's role outside its prescribed remit to foster capital formation and improve the functioning of markets into climate change advocacy. It is much too prescriptive, treats materiality too broadly and ambiguously, and panders to non-shareholder stakeholder constituency special interests. It will also impose huge reporting burdens on registrants without commensurate benefit. Additional disclosure, as required, will do little to improve transparency into a firm's operations, financial situation, outlook or assist ordinary investors in deciding to lend, to invest or disinvest in a company. The proposed rule also puts to question the role and limits of government and regulation in a market economy. It attempts to bring, without stating so explicitly, a common measurement thread across firms operating in very different sectors, stages of maturity and geographies. If seeking comparable data and statistics that may be aggregated to foster advancing national goals on climate change is one peripheral objective, the proposal is unlikely to catalyze that. Reporting and disclosure are outputs from scenarios and stress tests which in turn are heavily predicated on assumptions and methodological choices. Unlike the more mature sphere of financial accounting, within climate change, uncertainties and assumptions are far larger and harder to estimate. This is exacerbated by inherent risks embedded in climate's longer time horizon. Climate effects vary widely by sector, industry, geography and within these and other categories individual entities vary widely in carbon intensity. The level of climate damage at different levels of intensity and time frames varies hugely, is non correlated making additive aggregation of exposure a spurious exercise. At a systemic level to arrive at a macroprudential view, problems arise between the desired level of granular risk differentiation between firms and the need to aggregate millions of exposures (all arrived at separately) across firms. The nonlinear behavior of climate effects on specific categories have been near impossible to model over time using stocks, flows, internal feedback loops and the many unknown interconnections that exist. An interaction in which a change in one climate quantity causes a change in a second, and the change in the second quantity ultimately leads to an additional change in the first, multiplied multiple times adds to complexity. There exists no proven modelling framework that captures, even with reasonable accuracy, effects of climate scenarios over medium and long-time frames, much less attuned to the specifics of a particular company. We are still years away bridging features of climate modelling with economic and financial modelling, as well as incorporating methods which account for system dynamics, complex feedback, and amplification effects. Consulting firms have started new work in arriving at climate-related ratings, but these ratings are widely off the mark. One reason is we lack standardized metrics and definitions, and scores are based on proprietary methodologies. Projections are heavily driven by changes in methodologies as new data becomes available, as uncertainty from data and models changes and as future developments unravel. Climate change drivers continue to change which generate, increase, or reduce climate transition risks. Furthermore, evolution in government legislation, consumer tastes, regulation, market prices and other assorted factors effect changes in the carbon economy. These in turn affect causal chains and transmission channels to the real economy and ultimately to registrant corporation reporting and disclosure. In the absence of better answers, we see increased reliance and fallback on The Task Force on Climate-Related Financial Disclosures (TCFD) to develop consistent climate-related financial risk disclosures. However, this reliance is misplaced faith for purposes of fiduciary SEC reporting, as we do not have appropriate frameworks to systematically translate climate change scenarios into standard financial risk. Much work still remains to be done to further identify important risk drivers, their applicability, their transmission channels, and mapping those into measurable and reportable financial metrics. Corporate financial reporting horizons have tended towards three-year forecasts, but climate risks are expected to increase in materiality over a much longer horizon. Climate effects linkages and magnitude affects to credit, market, operational, liquidity risk have yet to be understood. Moreover, in the absence of consensus, individual firms can arrive at their own estimations which will vary widely, making comparable near impossible. This proposal, whilst well intentioned, is a case of regulation getting ahead of the science. I hope that these considerations may help you in your arriving at changes to your proposed Rule. Yours Sincerely, Sameer Jain Engaged Shareowner, ActiveAllocator Activist Capital Advisors C: attached: This letter in PDF format Sameer Jain Engaged Shareowner, ActiveAllocator Activist Capital Advisors L.P. C:Attached File #2:s71022-20121149-273287.pdf)