Jun. 17, 2022
Re: Request for comment on the Enhancement and Standardization of Climate-Related Disclosures for Investors (Release Nos. 33-11042; 34-94478; File No. S7-10-22) - Proposed rule Dear Madam, We are very pleased to have the opportunity to express our views on the Securities Exchanges Commission’s (SEC) proposed rule for the Enhancement and Standardization of Climate-Related Disclosures for Investors. The Mouvement des Entreprises de France (MEDEF) is the main French business confederation, representing 190 000 companies - from all sizes and sectors - including financial market participants and more than 10 million employees. In a context of far-reaching changes (economic, demographic, digital, societal), its mission is to promote free enterprise and encourage and enhance entrepreneurship. To achieve this, it takes initiatives that enable businesses to benefit from a favourable legislative and regulatory environment in the economic, fiscal, labour, environmental, and societal fields and to deploy their activities both in France and abroad. The MEDEF maintains a dialogue with all the actors of civil society and, with the various decision-makers, works towards achieving a better understanding of the constraints and the strengths of businesses. MEDEF has not the capacity to fully answer to the very rich and precise questionnaire but would like to raise some general concerns regarding this proposed rule that would require registrants to provide certain climate-related information in their registration statements and annual reports. French listed companies are highly committed in the fight against climate change and in the achievement of global climate-related objectives, notably keeping the temperature below 2°C and pursuing efforts to limit it to 1.5°C above pre-industrial levels. It is of the utmost priority, as companies are operating globally, to build a strong convergence in international reporting standards on climate. Furthermore, investors will also benefit from such convergence and harmonization. This convergence is also key to guarantee the quality of the information and its cohesiveness through to the value chain. Therefore, aligning requirements and methodologies will be key to ensure consistency and comparability. We welcome the efforts to build upon the existing commonly accepted frameworks such as the 2021 Task Force on Climate-related Financial Disclosures (TCFD), which is also central in the development of the proposed European and international standards on Climate. It offers a high potential for compatibility in the disclosure requirements between those future standards and the SEC’s proposed rule. To better take into consideration the needs of enterprises, we would like to raise the following comments: Granting equivalence to the EFRAG and ISSB standards on Climate change The European Union is in the process of implementing its Green Deal plan. This plan includes many actions in relation to disclosure requirements such as the green taxonomy, Corporate Sustainability Directive (CSRD) and Sustainable Finance Disclosure Regulation. As a part of those requirements, Europe is developing a set of comprehensive and high-quality standards. Concomitantly, the International Sustainability Standard Board of the IFRS Foundation is also developing a robust set of indicators on Climate change. We believe that it is primordial for preparers that the SEC consider granting an equivalence with those two sets of standards to avoid multiple reporting with overlapping requirements. These different options would allow U.S. and non-U.S. multinational companies to comply with agreed upon international standards, to minimize potential conflicts of law and compliance challenges, and provide consistent disclosures for investors. Such equivalence would not be detrimental to users and ultimately would strike a proper cost/benefit balance for users. It would also be beneficial to preparers who will face significant challenges over the coming years with respect to the implementation of the various sustainability reporting requirements. To this end, setting a multilateral working group between the different standard setters and the relevant jurisdictions is the best way to establish an efficient dialogue for enhanced compatibility between the various jurisdictional initiatives on sustainability disclosures. Aligning the materiality threshold with the usual one for financial materiality We understand that registrants would be required to disclose the impacts of the climate events (severe weather events, and other natural conditions and physical risks identified by the registrants) and transition activities (including transition risks identified by registrants) on the line items of their consolidated financial statement. We have strong reservations on the materiality threshold of 1% which seems excessively granular. It would cause excessive implementation costs. We are also concerned that such a threshold would not enable users to understand what is truly material from a financial perspective. Consequently, we recommend applying the financial materiality threshold. Deferring the proposed compliance dates for the proposed disclosures by one year (starting with fiscal year 2024, filing in 2025) The SEC proposes to require registrants to disclose the proposed climate-related information gradually from fiscal year 2023 onwards. Preparing such an ambitious set of high-quality disclosures will necessitate time and efforts. In order to favor the quality of the reporting, we believe relevant to defer the compliance date for all disclosure requirements by one year (reporting year 2024). Ensuring coherence with regard to assurance level We understand that a registrant would be required to include in the relevant filing an attestation report covering the disclosure of its Scope 1 and Scope 2 emissions with a progressive level of assurance from limited to reasonable. The CSRD currently under debate in the European Union tentatively requires a limited assurance and already envisage to reinforce the expected level to a reasonable assurance in the near future, that may be provided at a later date than for SEC registrants. MEDEF considers that given the complexity and lack of maturity of the methodologies available for the transition plans, a limited assurance is more adequate at the moment. We invite the SEC to consider the implications of a potential difference in scope, timing and level of assurance between the SEC’s proposed rule and the EU Regulation, also in the light of preparers and auditors’ level of readiness to comply with such requirements. 5. Ensuring a level playing field MEDEF stresses the importance of the level playing field for companies. Therefore, some aspects of the EFRAG’s proposals are more demanding in terms of transparency, especially regarding the disaggregated information for (i) GhG emission reduction targets (aligned with 1.5°C scenarios) and (ii) removals and carbon credits to achieve the targets. We believe that the SEC disclosure requirements for transition plans should clearly require that the registrant companies explain how their transition plan is situated in relation to the target of the Paris agreement on the global warming. The idea is not to impose any mandatory target but to allow a better understanding of the transition plan disclosed by companies and to give more comparability of information to investors. Moreover, taking into account the mandatory principal adverse impacts relevant to the climate disclosures that the financial market participants must consider as part of the European regulation could be a good way to ensure that investors globally benefit from a consistent information without requiring any additional information from companies. In addition, we think that the disclosure requirements in the financial statements should be limited to events that actually occurred (eg property loss), and not those that did not occur (eg. loss of revenues). Finally, the SEC’s proposed rule should allow flexibility for companies to determine their organisation and methodology to determine their GHG emissions. Many companies use in particular the GHG Protocol and they should be allowed to continue. No specific methodology should be imposed. Those specific points will also concur to the level playing field. Should you need any further information, please do not hesitate to contact us[1]. Yours sincerely, Christophe Beaux CEO Mouvement des Entreprises de France [1] Karine Merle, deputy director of the Economics department () and Pauline Fiquémont, CSR project director () [1] Karine Merle, deputy director of the Economics department () and Pauline Fiquémont, CSR project director ()