May. 09, 2022
Dear SEC, In response to SEC’s request for comments on S7-10-22, The Enhancement and Standardization of Climate-Related Disclosures for Investors, I am submitting the following comments: Tropical deforestation represents 10-15% of human-induced global greenhouse gas emissions. Deforestation is a supply chain issue for many companies. As a result, they face direct and/or indirect physical and transition risks. There have been numerous efforts and announcements from companies over the past 10+ years to end supply chain deforestation as part of overall strategies to reduce climate change risks. As such, deforestation is a physical and transition risk for companies and a financial risk for investors. During the rampant wildfires in the Amazon in 2019, investors pressured companies to address their roles in this deforestation (https://chainreactionresearch.com/the-chain-investor-pressure-mounts-on-companies-connected-to-amazon-fires-deforestation-in-brazil) – ie, about 80% of Amazon deforestation is due to land-clearing for cattle ranching to produce beef and leather. Companies that are not aware of where their direct and indirect suppliers are located and whether they are contributing to deforestation can see revenue impacts, eg, suspension of RSPO certification for palm oil and loss of key customers – as in the case of IOI Corporation due to a four-month suspension of RSPO certification in 2016 (see https://chainreactionresearch.com/wp-content/uploads/2016/07/ioi-corp-crr-update-july-18-2016.pdf and https://www.ceres.org/sites/default/files/Engage%20the%20Chain/ETC%20Climate%20Advisors%20Case%20Studies%20(1).pdf) – and how long it will take the company to rebuild customer relationships and demand. Knowing if deforestation is occurring in a company’s supply chain is important information for a company to know, as well as its customers, investors, and the public, as well as how the company plans to address it. Comments below are per SEC's pdf posting of its proposed rule - https://www.sec.gov/rules/proposed/2022/33-11042.pdf: Question 8, p. 67, Yes, registrants should be required to disclose their climate-related risks that are reasonably likely to have a material impact. As discussed above, it is important to know if deforestation is occurring in a company’s supply chain. Question 10, p. 68, Yes, including more examples of transition risks would be useful, eg, examples specific to deforestation. Question 17, p. 71, Yes, upstream and downstream activities are appropriate to be considered in the value chain. This is a standard approach for what is considered to be included in the value chain.. Question 24, p. 89, Yes, the role of carbon offsets of RECs should be disclosed rather than embedded. Transparency is important to investors and the public.. Question 26, p. 90, Yes, disclosure of an internal carbon price would be useful information to investors, as well as how it was derived, if it will be adjusted over time, and how it is being used to affect company actions, decisions, and investments. Question 29, p. 91, Companies should be required or at least encouraged to disclose their internal carbon price, and explain how it was derived and how it affects their actions, decisions, and investments. Questions 46, 47, & 49, pp. 108-109, As part of their transition plan disclosures, companies should disclose to investors whether they have a goal to end supply chain deforestation, for which commodities/inputs they have exposure to deforestation, what percent of their respective supply chains have they mapped and traced commodity flows, and how they will determine if deforestation is no longer occurring in their supply chains. Question 60, p. 129, Yes, as discussed above, the impact from climate-related events and transition activities will be useful to investors to know on an ongoing basis. Question 100, p. 176, To more fully inform investors, Scope 3 emission disclosures should not be voluntary, especially when these emissions may far outweigh a company's Scope 1 + Scope 2 emissions. They should be quantified or somehow characterized. Question 104, pp. 177-178, Yes, land use should be specifically added as an upstream emissions disclosure category. The rule should make clear that indirect GHG emissions include GHG emissions from deforestation. (Note: these emissions are likely to be difficult to quantify.) For example, pp. 39-40 and 150 can make clear that Scope 3/indirect emissions can include emissions from supply chain deforestation. Questions 169-171, pp. 272-273, Yes, disclosure of targets or goals should fully inform investors and the public as to their value to the company, what they mean, including their scope, unit of measurement, time horizon, baseline, interim targets, and how the company plans to meet these targets or goals. Thank you for your consideration, Richard Kashmanian, PhD Arlington, VA USA