Commentators slam SEC’s proposed climate risk disclosure rules

Posted on Jun 30, 2022 by Kim Riley

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Proposed rule changes by the Securities and Exchange Commission (SEC) that would require more detailed climate-related risk disclosures on registration statements and periodic reports would not be as helpful to investors as the agency thinks, according to many commentators.

“We believe… that some of the most burdensome aspects of additional disclosure would not produce benefits outweighing the costs and, in some cases, would lead to investor confusion by requiring the disclosure of extremely voluminous and immaterial information,” said said Edison Electric. Institute (EEI) and the American Gas Association (AGA) in their joint comments filed with the SEC.

On March 21, the commission proposed several rule changes in improving and standardizing climate-related disclosure for investors with the overriding aim of ensuring that investors receive information about climate risks and greenhouse gas emissions. greenhouse effect (GHG) that are consistent, comparable and reliable. The commission set June 17 as the deadline for receiving comments.

Specifically, the SEC is proposing that registrants be required to include certain climate-related information in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to impact material to their business, results of operations or finances. statement, and certain climate-related financial statement measures in a note to their audited financial statements, according to the SEC.

Required disclosures about climate-related risks should also include disclosure of a registrant’s GHG emissions, which the SEC says has become a commonly used measure to assess a registrant’s exposure to such risks.

But according to comments from the IEE and AGA, the organizations and their members believe that “it is vital that the commission puts in place useful and informative rules and recognizes the inherent difficulty of obtaining material information precise and timely on the climate, in particular with regard to the indirect effects”. GHG emissions across a registrant’s value chain, and the resulting lack of comparability that these limitations necessarily produce.

The Energy Workforce & Technology Council, which includes member companies ranging in size from small individual companies to large, publicly traded multinationals, said in its filing that the council has “serious concerns” about the proposed changes to the rules of the SEC, particularly with respect to GHG requirements.

Not only does the board believe such a change would be outside the SEC’s jurisdiction, but “if passed, it would impose a significant burden on our industry and the economy as a whole,” said Leslie Beyer. , CEO of Workforce Energy & Technology Consulting, in a related statement.

“This burden could put additional strain on the energy supply chain and discourage continued energy production in the United States, which is the last thing the country and the world need right now,” said Beyer.

EEI and AGA also stressed that climate disclosure requirements should provide investors with a useful and cost-effective level of detail that balances the value to investors of any additional information that needs to be reported with the cost of developing, collecting, validating and reporting this information, as well as the cost of the certificate, according to their filing.

On the same page is Eversource Energy, which provides energy and water services to approximately 4.4 million electric, natural gas and water customers through 10 regulated utilities in New England in Connecticut, Massachusetts and New Hampshire.

Regarding the level of detail, for example, Eversource said the proposed disclosure requirements should be at the consolidated entity level or at the level at which senior management monitors progress toward climate goals.

“Eversource manages emissions and related reporting at a consolidated level. We prepare our GHG inventory at this level, which corresponds to our objective of carbon neutrality. However, as part of the proposal, we would need to prepare this for our listed subsidiaries that have public debt, even though they all have essentially the same business model, each with zero emissions generation,” according to the company filing. . “It would be a significant resource challenge to revise the data collection approach currently in place to meet this separate reporting requirement for our regulated power subsidiaries that do not have publicly issued equity securities.”

Eversource asked the SEC not to require this level of reporting, given the additional costs involved and the limited usefulness of disaggregated information.

EEI and AGA also noted that their members already provide important climate information to investors and are industry leaders in voluntary disclosure through their pioneering environmental, social and governance (ESG) reporting. industry, the first of its kind and on an industry scale. model developed with and for investors more than five years ago.

Many companies have accepted.

Tucson Electric Power Co. (TEP), an investor-owned utility in Arizona that serves about 438,000 customers, said the SEC’s proposal to include climate information in its Form 10-K would increase compliance costs due to accelerated filing times and internal controls. associated with financial reports.

“TEP is already required to report the majority of its Scope 1 GHG emissions annually to the U.S. Environmental Protection Agency,” according to the company, which added that it also reports related information and data. climate (e.g., emissions and fuel consumption) to other federal and state regulatory agencies, such as the US Energy Information Administration and the Arizona Corporation Commission. And TEP also voluntarily discloses on its website the majority of its material GHG emissions on EEI’s industry-specific ESG reporting template each year, according to its filing.

“The ESG model was developed in conjunction with industry investors (and streamlines investor-relevant information into two pages),” according to TEP’s filing. “These reports are either regulatory requirements that have enforcement and sanction consequences for non-compliance, or public statements that undergo significant internal scrutiny and have reputational consequences if breaches are reported. inaccurate or misleading information.”

These efforts outweigh any additional benefit the SEC’s proposed rule changes might bring beyond the value of the regulatory and voluntary reporting its investors and other stakeholders already have access to, TEP said.

National Grid plc, one of the world’s largest investor-owned energy utilities, serving nearly 30 million electricity and gas customers and listed on both the London Stock Exchange and the New York Stock Exchange, agreed.

In its comments, National Grid noted that as a dual-listed company it is already required to make full climate-related disclosures in the UK, the location of its primary listing.

“To manage the compliance burden of foreign private issuers while meeting the objectives of the SEC’s proposed rules, our key recommendation is that foreign private issuers subject to substantially comparable climate-related disclosure requirements, like us, be exempted. to comply with the proposed rules,” according to National Grid’s comments. “We believe this recommendation would save a significant amount of effort and cost associated with complying with multiple jurisdictions’ requirements while minimizing any unnecessary duplication and confusion, which would ultimately defeat the purpose of providing useful information for the main users of financial information.

Additionally, TEP said it was important for the commission to note that the proposed rule would also create costs and burdens for unlisted entities, including unlisted electric utilities that supply electricity to registrants. . TEP said it regularly does business with these unlisted electric utilities, including private companies, public electric entities and electric cooperatives.

According to the SEC’s proposed amendments, registrants who are customers of these entities “may require utility-specific energy emissions disclosures for their own reporting and may require auditability of such disclosures from utility companies.” unregistered public. As a result, these entities will also have new reporting and cost burdens,” TEP said in its filing.

Among several suggestions, EEI and AGA also believe that the SEC’s final rule should only require forward-looking disclosures covering periods for which the necessary processes and controls may have been designed and implemented.

“With these changes, the new disclosure requirements will better balance the burden they impose with the benefits of providing investors with more reliable, comparable and useful information to make informed investment decisions,” according to their filing.

Martin E. Berry