Jun. 04, 2022
The Enhancement and Standardization of Climate-Related Disclosures for Investors About AKFI The Actionable Knowledge Foundational Institute AKFI.org is an industry nonprofit consortium developing plans for digital transformation and ESG integration into actionable frameworks and roadmaps. How to contact us? Actionable Knowledge Forum International Corp. DoB Actionable Knowledge Foundational Institute, registered in Texas (803771355) Our comments Request for Comment No: 8 (Page 67) Should we require a registrant to disclose any climate-related risks that are reasonably likely to have a material impact on the registrant, including on its business or consolidated financial statements, which may manifest over the short, medium, and long term, as proposed? If so, should we specify a particular time period, or minimum or maximum range of years, for “short,” “medium,” and “long term?” For example, should we define short term as 1 year, 1-3 years, or 1-5 years? Should we define medium-term as 5-10 years, 5-15 years, or 5-20 years? Should we define long-term as 10-20 years, 20-30 years, or 30-50 years? Are there other possible years or ranges of years that we should consider as the definitions of short, medium, and long term? What, if any, are the benefits to leaving those terms undefined? What, if any, are the concerns to leaving those terms undefined? Would the proposed provision requiring a registrant to specify what it means by the short, medium, and long term mitigate any such concerns? Our comment: As referenced in various sections of the Proposed Rules, as per consistency, comparability, and reliability reasons, we recommend defining the short, medium and long term. Additionally, we also recommend a “comply-or-explain” approach on that topic, where the Registrants will be free to not use the SEC-defined years but will need to explain “why” if they chose a different time horizon. Further, where quantitative goals are used, Registrants must use the same time scale, reflecting, for example, their annual targets/goals. For example, a balance between baseline emissions and additional emissions: Baseline Year of reporting 2020 1B tons of CO2 Year one (2021) no reduction, no increase – 1B tons of CO2 Year two (2022) no reduction (working on technology to filter GHG), 15% increase due to new facilities 1.15B tons of CO2 Year three (2023) 20% total reduction – remaining 77% to net zero, no increase 770M tons of COs Year four (2024) 50% total reduction – remain 38.7% to net zero, increase 10% due to new facilities, or Year five (225) 80% total reduction …. 'Net zero' means that any emissions are balanced by absorbing an equivalent amount from the atmosphere either directly or through carbon credits. Request for comments Section C 1 Pg. 72 & 73 As proposed, a registrant would be required to disclose impacts on its: · Business operations, including the types and locations of its operations; · Products or services; · Suppliers and other parties in its value chain; · Activities to mitigate or adapt to climate-related risks, including the adoption of new · technologies or processes; · Expenditure for research and development; and · Any other significant changes or impacts. Our comment: It is widely accepted that the entire global and US industries are going through digital transformation, also referred to here as digitalization. Analysts also coined the term Industry 4.0. This is where Internet and Communications Technologies, or ICT are driving a profound transformation including the use of robotics, Artificial Intelligence (AI), and the Internet of Things (IoT). The transformation process requires massive use of technologies such as cloud computing, blockchain, and in some cases cryptocurrencies. ICT industries are major users of electricity mainly produced by fossil fuels. The supply chain also includes the manufacturing of electronic components and batteries used are also using processes that cannot avoid GHG releases such as mining. “The global industry 4.0 market is projected to grow from $116.14 billion in 2021 to $337.10 billion in 2028 at a CAGR of 16.4% in the forecast period, 2021-2028” Source: https://www.fortunebusinessinsights.com/industry-4-0-market-102375 At the same time, technologies such as AI and IoT play a fundamental role in tracking, measuring, and mitigating the release of GHG. Hence, digitalization must be included in the SEC Statistics show that the global cloud computing industry was projected to hit $250.05 billion in 2021 and reach the $791.48 billion mark by the year 2028. The high growth of the cloud computing industry is attributed to several factors such as the surge in internet penetration, the digital transformation across various industries, and the large consumption of data in various verticals. The increased adoption of 5G, Artificial Intelligence, and the Internet of Things (IoT) are expected to further propel the growth of the cloud computing industry. Source: https://www.nasdaq.com/articles/cloud-computing-energys-efficiency-problems According to the Cambridge Center for Alternative Finance (CCAF), Bitcoin currently consumes around 110 Terawatt Hours per year — 0.55% of global electricity production, or roughly equivalent to the annual energy draw of small countries like Malaysia or Sweden. This certainly sounds like a lot of energy. But how much energy should a monetary system consume? Source: https://hbr.org/2021/05/how-much-energy-does-bitcoin-actually-consume Computers, data centers, networks and the like now gobble up nearly 10% of the world’s electrical consumption—and the figure continues to rise. While there is no question of giving up the progress made possible through digital technology, researchers point to a system that is neither optimal nor energy-efficient. Source: https://news.cnrs.fr/articles/new-technologies-wasted-energies https://www.nytimes.com/interactive/2021/09/03/climate/bitcoin-carbon-footprint-electricity.html “We’ll explain how that works in a minute. But first, consider this: The process of creating Bitcoin to spend or trade consumes around 91 terawatt-hours of electricity annually, more than is used by Finland, a nation of about 5.5 million. The U.S. has fast become the new darling of the bitcoin mining world. It is the second-biggest mining destination on the planet, accounting for nearly 17% of all the world’s bitcoin miners as of April 2021. That’s a 151% increase from September 2020. Source: https://www.cnbc.com/2021/07/17/bitcoin-miners-moving-to-us-carbon-footprint.html Hence, we are recommending that companies must disclose the use of digitalization and use of cryptocurrencies in (digital transformation) in their GHG-related reporting as detailed in the next section. Page 83 Disclosure of Scenario Analysis, if Used We are proposing to require a registrant to describe the resilience of its business strategy in light of potential future changes in climate-related risks. The proposed definition of scenario analysis both states that (i) when applied to climate-related assessments, a scenario the analysis is a tool used to consider how under various possible future climate scenarios, climate-related risks may impact a registrant’s operations, business strategy, and consolidated financial statements over time; and that (ii) registrants might use scenario analysis to test the resilience of their strategies under future climate scenarios, including scenarios that assume different global temperature increases, such as, for example, 3 °C, 2 °C, and 1.5 ºC above pre-industrial levels Our comments: We recommend and are in full support of disclosing the levels and use of digitalization in the evaluation of business resilience and longevity. Without adopting business model transformation through the digital transformation businesses will face increased competition from ‘digital native’ companies. Further, companies will not be required to disclose investment and business model risks and a source of major GHG releases. “Digital transformations fail all the time. According to an Everest Group study, 73% of companies declined to provide any business value from their digital transformation process. This percentage is really staggering. Even the most successful companies suffer from digital transformation failures. For example, GE started building an IoT platform back in 2011 to underpin its entire digital transformation initiative. Even though the giant spent billions of dollars on this massive transformation, the stock price kept falling, affecting many of its operating segments.” Source: https://www.consulteer.com/blog/2020/09/16/70-of-digital-transformations-fail-and-heres-why/ Also, we recommend that companies should report on remote working as it has a positive impact on GHG emissions. “For example, In 2018, 28.2% of greenhouse gas emissions came from the transportation sector. Furthermore, the EPA says that greenhouse gas emissions have increased by 3.7% since 1990. Working as little as one to two days a week at home can reduce the number of cars on the road, which leads to less traffic congestion and less wear and tear on the road, and reduces the number of greenhouse gasses released into the atmosphere. Consider this: If 3.9 million people worked from home at least half time, that would reduce greenhouse gas emissions in an amount equivalent to removing 600,000 cars for an entire year! To replicate that reduction, it would take planting 91 million trees to offset the same level of emissions, according to 2017 data from Global Workplace Analytics.” Source: https://www.flexjobs.com/blog/post/telecommuting-sustainability-how-telecommuting-is-a-green-job/ Page 88 Request for Comment 19. Should we require a registrant to describe the actual and potential impacts of its material climate-related risks on its strategy, business model, and outlook, as proposed? Should we require a registrant to disclose impacts from climate-related risks on, or any resulting significant changes made to, its business operations, including the types and locations of its operations, as proposed? Our comments: Yes, and should include digitalization as part of the “climate-related risks on its strategy, business model, and outlook” 20. Should we require a registrant to disclose climate-related impacts on, or any resulting significant changes made to, its products or services, supply chain or value chain, activities to mitigate or adapt to climate-related risks, including the adoption of new technologies or processes, expenditure for research and development, and any other significant changes or impacts, as proposed? Are there any other aspects of a registrant’s business operations, strategy, or business model that we should specify as being subject to this disclosure requirement to the extent they may be impacted by climate-related factors? Our comments: Yes, as noted in the previous section digital transformation plays a central role in Industry 4.0. “Industry 4.0 has been defined as “a name for the current trend of automation and data exchange in manufacturing technologies, including cyber-physical systems, the Internet of things, cloud computing and cognitive computing and creating the smart factory”. Source: https://www.i-scoop.eu/industry-4-0/ 22. Should we require a registrant to discuss whether and how it considers any of the described impacts as part of its business strategy, financial planning, and capital allocation, as proposed? Should we require a registrant to provide both current and forward-looking disclosures to facilitate an understanding of whether the implications of the identified climate 89 related risks have been integrated into the registrant’s business model or strategy, as proposed? Would any of the proposed disclosures present competitive concerns for registrants? If so, how can we mitigate such concerns? Our comments: Yes. Companies already disclose, at least in part, their digital transformation plans. The disclosure includes press releases, interviews with technical and general media, and participation in surveys. As a minimum, a company should disclose the level of capital expenditure on digital transformation and the performance of the utilization of the capital. There is no requirement to provide a technical description. Best regards, Manuel Manuel Vexler AKFI Executive Director Booking Calendar Link