The SEC's proposed rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors is part of a global movement to improve and harmonize climate-related financial disclosures, which support informed investment decisions and incent ambitious action.
The European Union (EU) and other jurisdictions outside the United States (US) are mandating climate disclosure. Over 2600 companies have already committed to similar disclosures, and the world's largest asset managers are demanding them. By codifying a climate-related disclosure rule, the SEC joins a broad network of institutions formalizing the production and publication of the information investors need to make decisions.
This leadership from the world’s largest economy is significant and can help prevent a fractured disclosure landscape for US companies since many will be required to comply with climate reporting mandates in other jurisdictions.
BSR welcomes the proposed rule as a necessary (but not sufficient) feature of regulatory efforts to ensure urgent action by companies and investors to address the climate crisis.
In support of the SEC’s current efforts to react to market demand for comprehensive climate-related financial disclosures, BSR responded to the latest public consultation on climate-related disclosure and encouraged the Commission to publish a final rule that includes the following:
1. Disclosure requirements that are fundamental for effective climate-related decision-making
The final rule should be just as comprehensive as the proposed draft and require disclosure of key climate-related information in financial filings, including companies’ scope 1, 2, and 3 emissions, assurance for scope 1 and 2 emissions, and governance metrics, particularly those that show board-level involvement.
2. Balances prescriptiveness and flexibility that provides clear guidance to report preparers
Greater clarity in a final rule on elements that are currently open to interpretation—and relevant resources that may aid disclosure—will enable companies to comply more easily.
3. Provides additional accommodations for preparers
BSR supports accommodations for preparers included in the proposed rule. The Commission can also consider additional methods of flexibility, such as allowing an extended period of acceptable estimates for scope 3 emissions and clarifying expectations related to re-baselining of goals and targets in line with globally accepted methodologies.
4. Supports ambitious voluntary commitments
Certain provisions of the proposed rule may disincentivize new climate action and target-setting by requiring disclosure only if the company has a plan or target in place. Accordingly, the SEC should consider adopting a “comply or explain” approach for conditional disclosures (e.g., scope 3 emissions, climate-related goals, targets and transition plans, and the use of climate scenario analysis) where companies would either disclose their approach or explain why they do not have one.
We also emphasize the importance of providing companies with a strong liability shield or “safe harbor” for certain disclosures (e.g., climate scenarios analysis) where uncertainty is inherent in the information being reported and where the absence of these protections may have a chilling effect on disclosure.
5. Is harmonized with relevant global reporting standards and requirements from other jurisdictions
BSR supports the important step that the SEC has taken in building its proposed rule upon broadly accepted reporting frameworks. Accordingly, the SEC should allow the use of alternative reporting provisions that are harmonized with criteria developed by the International Sustainability Standards Board (ISSB) to ease the reporting burden on companies that will also be required to report against these provisions in other jurisdictions.
BSR strongly supports the SEC’s decision to require climate-related financial disclosure, acknowledges the merit behind the Commission’s efforts to create a comprehensive yet accommodating proposed rule, and encourages the SEC to issue a final rule that continues to drive alignment in the reporting landscape, leads to improved climate-related risk management and governance, and incentivizes credible climate action.
BSR will continue to engage on this issue, and in ESG reporting more broadly, through our Future of Reporting collaborative initiative. We encourage companies to get involved in the consultation process by showing support for the proposed rule and the SEC’s efforts to harmonize the reporting landscape and highlighting ways the Commission can strengthen the rule for the benefit of all stakeholders.