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The following comment was summitted to Securities and Exchange Commission Secretary Vanessa A. Countryman regarding the proposed rule on the “The Enhancement and Standardization of Climate-Related Disclosures for Investors” on June 17, 2022. 

Dear Ms. Countryman,

Introduction: a statement of support (with a few caveats)

The Institute for Agriculture and Trade Policy (IATP)1 appreciates the opportunity to comment on the Proposed Rule (PR). We congratulate and thank the SEC for proposing a fair and comprehensive rule that defines and identifies climate-+related risks for the purpose of determining their financial impacts on SEC registered companies. As the PR states,

A central focus of the Commission’s proposed rules is the identification and disclosure of a registrant’s material climate-related risks. The proposed rules would require a registrant to disclose any climate-related risks reasonably likely to have a material impact on the registrant’s business or consolidated financial statements . . . As proposed, “climate-related risks” means the actual or potential negative impacts of climate-related conditions and events on a registrant’s consolidated financial statements, business operations, or value chains, as a whole.” (PR, pp. 56-57)

This central focus, sustained throughout both the PR’s explanatory text and the text amending Regulations S-K and S-X, makes crystal clear that the PR is not a “back door” environmental rule that extends SEC authorities to environmental objectives and means to achieve those objectives, over which the Commission does not have authority. If registrants have questions about what constitutes “materiality” in relation to climate-related risks, they can consult the “SEC Staff Accounting Bulletin No. 99: Materiality,”2 with which registrants are familiar. The PR usefully provides citations to Supreme Court rulings, according to which doubts about whether a particular risk is “material” are to be resolved in favor of disclosure of the risk to the investor. (p. 64, footnotes 209 and 210, footnotes 445 and 446, p. 162) Clearly, the SEC has the authority to require climate-related financial disclosures and these disclosures, as proposed, are material to the registrant’s consolidated financial statements and business operations.  

The PR, if adopted and complied with, will provide investors, investment advisors and broker dealers (hereafter “investors”) with the quality and granularity of comparable climate-related financial disclosures that investors have requested from companies but have not received. (PR, pp. 27-32, et passim) We support the Commission’s decision to propose to update current SEC disclosure rules and climate disclosure guidance, rather than propose a separate climate related disclosure rule. (Question 1) This decision underscores the long-established authority of the SEC to require registrants to disclose quantitative information in financial statements and narrative information on business strategy, model and outlook: Climate-related financial disclosure is just one more kind of disclosure, not a sui generis invention of an “overreaching” regulator.

A recent letter to the SEC from 30 professors of securities regulation and law documents “Congress’ broad delegation to the Commission of the power to determine what disclosure is necessary or appropriate in the public interest, or for the protection of investors, or to promote fair dealing in securities traded on the U.S. capital markets.”3 While IATP’s main focus is not  securities law and regulation, we are persuaded by experts that the Commission has the authority to mandate climate-related financial disclosures.

By requiring issuers to file expenditures, costs and other financial data related to the registrant’s physical and transition risks in a comprehensive and comparable format, investors will be able assess the impact of those risks on the registrant’s balance sheet and other financial statements. By requiring registrants to narrate in the 10-K and 10-Q forms the governance structure, business strategy and outlook for registrants’ progress in managing their identified climate-related financial risks, investors will have important and relevant information as they conduct overall due diligence to make reasoned investment decisions. We agree that the technical challenges of developing climate related disclosures require a phase-in period to the effective compliance date, as the Commission proposes. (PR, p. 46)

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