Jun. 20, 2022
Thank you for your consideration of these comments from the Consumer Technology Association. Intro CTA has long supported efforts to reduce industry impacts on climate, and for companies to disclose their climate impacts. For example CTA recently released its third annual Industry Report on Greenhouse Gas (GHG) Emissions, which highlights the collective and individual accomplishments of member companies in reducing greenhouse gas (GHG) emissions year-over-year — both globally and in the U.S. The 2021 report is part of CTA’s pledge to encourage its members to calculate and publicly disclose their emissions while also recognizing individual company programs and initiatives. Voluntary disclosure practices such as these already provide important information for investment decisions outside any formal SEC disclosure process. Disclosure mandates by the SEC is one possible tool for helping level the disclosure playing field, and for informing company owners and the public more generally on corporate climate-related performance. But CTA recommends the SEC avoid mandates that are inconsistent with science-based approaches and defer to voluntary disclosure processes where appropriate methodologies are not yet ready for SEC mandates. Even more importantly, CTA is concerned that the proposed regulations would create an even more unlevel playing field that could make more diligent climate reporting and emissions-reducing companies look like worse than companies less committed to reporting and reducing greenhouse gas emissions. Disclosure of Climate Related Risks CTA supports requirements for companies to disclose information on financially material climate-related risks associated with their businesses consistent with reporting requirements of other types of risks carried by companies. CTA does not support the overly prescriptive requirements of the rule that would require companies to report detailed information not only on their climate-related risks, but on how those risks are identified, quantified, and managed within the company. Furthermore, CTA encourages the SEC to focus disclosure requirements on emissions and not on other climate-adjacent items like material management/circular economy activities and water usage. This will help keep the focus on an “apples to apples” comparison and not be so all-encompassing of anything and everything that could be possibly climate related. Safe Harbor for Board Members Determined to Have Climate Expertise We also believe that similar to the proposed cybersecurity rule, a safe harbor should be introduced to Items 1501(a)(1)(ii) and 1501(b)(1)(i). This safe harbor would indicate that a person who is determined to have expertise in climate-related risks will not be deemed an expert for any purpose, including, without limitation, for purposes of Section 11 of the Securities Act of 1933. Furthermore, this is especially important given that “climate-related expertise” is undefined and it would be up to the discretion of the company to make this assessment. Clarity Requested for “Controlled Operation” In regard to reporting Scope 1 and 2 emissions, CTA would like to see more clarity on a company defining its boundaries and what is considered to be within control for inclusion of reporting Scope 1 and 2 GHG emissions. Many CTA companies have set GHG emissions reduction targets and have worked through Scope 1 and 2 reporting issues with NGOs and other partners. CTA requests that companies be permitted to continue to follow this approach using recognized standards. Having clarity and consistency around what is a ‘controlled operation’ to understand which Scope 1 and 2 GHG emissions would be included would be beneficial. Scope 3 Emissions Disclosure CTA believes the Scope 3 Emissions Disclosure requirements of the proposed SEC rule should either be eliminated or amended to reflect a filing company’s published GHG emissions goals or commitments on the belief that for a company to set a goal for Scope 3 emissions it must possess primary data that is suitable for tracking and reporting those Scope 3 emissions. Scope 3 emissions, by definition, are typically outside the operational control of companies and are in most cases very difficult to estimate with a level of accuracy that would provide meaningful information to investors. As reflected in CTA’s annual climate report, many consumer technology companies have been global leaders in working to collect primary data required to produce credible emissions estimates for Scope 3. But getting reliable primary data remains elusive even for the most committed companies. Instead forced to rely on surrogate emissions indicators like supplier spend and generic industry emissions factors that can be years old to estimate emissions. As a result, many Scope 3 emissions estimates are order of magnitude guesstimates as opposed to deterministic numbers, and they are not suitable for financial filings. The challenges with Scope 3 and using Scope 3 as a benchmark comparison tool across companies are well documented. Given this, CTA believe applying an absolute threshold (such as total Scope 3 emissions or Scope 3 emissions as a percentage of total emissions) for determining materiality of Scope 3 emissions is not appropriate. Timing problems with 10K deadline For Scope 1 and Scope 2 emissions reporting, the proposed rule should allow sufficient time to prepare accurate emissions estimates that can be verified through third party attestation. The many CTA companies that already calculate their Scope 1 and Scope 2 GHG emissions companies currently collect extensive information from various entities such as utility companies, energy retailers, and landlords regarding their actual energy consumption. Additional complexity comes with renewable energy certificates and relevant emissions factors that are necessary for estimating the GHG emissions associated with that energy consumption. This data collection can require several months after the close of a fiscal year, after which data must be validated, emissions calculated, and third-party attestation must be completed. This can simply not be completed in time for most companies to include in their 10K fiscal reporting. While the SEC proposed rule would allow companies to estimate the final three months of their previous fiscal year’s emissions without actual supporting data, we do not support this approach as it would create substantial additional work for filing companies to generate estimates and then reconcile those estimates later on when actual data was available to calculate the emissions. Instead, CTA suggests providing required GHG emissions information in a separate filing to be completed up to six months following completion of their fiscal year. Given the time required to implement actions to reduce Scopes 1 and 2 GHG emissions (which can occur across decades), we believe this is more than adequate to meet investor needs. Audited financial statement requirement about climate matters CTA is also concerned about the proposed requirement to subject financial statement metrics to audit. Most financial account structures do not currently tag environmental conditions. Therefore, we believe that the SEC should eliminate this requirement or give companies more time to allow maturation of process and controls over climate-related information. Measuring climate impacts requires gathering disparate data that resides across multiple functions of an organization and with third parties. Data processes and controls over climate-related information is not as mature as financial reporting processes and controls. To mature these processes and controls to a level of audit readiness will take significant time. The proposed rule, as written, can result in significant overlap of disclosures required for expenditure metrics with those required for financial impact metrics. For example, if a consumer technology company designs a new product or service that is more energy efficient (an expenditure), and at the same time regularly provides products with increased performance and greater security, how much of the associated development expense would be tagged as climate-related? If a company builds a new building with increased amenities that is also more energy efficient, how much of the expenditure is attributed to climate-related reasons and should energy savings offset the expense? If a company rolls out a new product at CES – historically like the VCR, Internet gaming, HD plasma displays, and many more over the decades – how should climate impacts of CTA’s leading global trade show and other third party marketing and sales activities be accounted for in company financial filings? And if a company experiences either an increase or decrease in sales of a product or service, how would they determine if that was related to climate change, some other attribute of the product or service, or just changing demand for that service? CTA supports a more targeted disclosure rule that is consistent with financial reporting requirements that help enable investors make decisions about a company’s risk exposure to climate-related impacts. Thank you for your consideration. Walter Alcorn Vice President, Environmental Affairs and Industry Sustainability Consumer Technology Association 1919 South Eads Street Arlington, VA 22202 (571) 239-5209 (c) www.CTA.tech Disclaimer The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action in relation of the contents of this information is strictly prohibited and may be unlawful. This email has been scanned for viruses and malware, and may have been automatically archived by Mimecast Ltd, an innovator in Software as a Service (SaaS) for business. Providing a safer and more useful place for your human generated data. Specializing in; Security, archiving and compliance. To find out more Click Here.