In sustainability world. The SASB-VF-ISSB met and ISSB announced it will be working with GRI. All those acronyms… but essentially it means sustainability standards are progressing and many of the entrenched arguments - for instance between a “double materiality” view point or an “investor-centric” view point might be a little closer to some reconciliation. Most investors pay limited attention to the nuances of those arguments but do pay attention to data - especially “material” data - the data we want/need to make investment relevant decisions.
This makes the SEC announcements that they will require carbon emission disclosure very significant. There is hardly a sustainability investor who has not heard but the recap is:
Board and management oversight and governance of climate-related risks
How any climate-related risks have had or are likely to have a material impact on its business and financial statements over the short-, medium-, or long-term
How any identified climate-related risks have affected or are likely to affect strategy, business model, and outlook
Processes for identifying, assessing, and managing climate-related risks and whether such processes are integrated into the overall risk management system or processes
The impact of climate-related events
Scopes 1 and 2 GHG emissions metrics, separately disclosed, expressed both by disaggregated constituent greenhouse gases and in the aggregate, and in absolute and intensity terms
Scope 3 GHG emissions and intensity, if material, or there is a GHG emissions reduction target or goal that includes its Scope 3 emissions; and
Any climate-related targets or goals, or transition plan…
Columnist Matt Levine has several takes on this but one intriguing idea (which he floats from time to time) is that the SEC is a form of global “meta-regulator” because US business touches the whole world (and so many “stakeholders”, customers, employees, supplies etc.) in so many ways then the way you regulate US business will regulate the world.
In that sense by demanding climate data, the SEC is suggesting climate is relevant for US business and thus the world. There is significant push back on this. Probably best summed up from a regulators view by Hester Peirce, who essentially argue the SEC is not an “Environment Commission. She argues:
“...the proposal will not bring consistency, comparability, and reliability to company climate disclosures. The proposal, however, will undermine the existing regulatory framework that for many decades has undergirded consistent, comparable, and reliable company disclosures…”
If you believe Levine’s view or even weight it a little bit then this disclosure proposal is quite a significant battle. Do feel free to comment your support (or not) here: https://www.sec.gov/rules/submitcomments.htm
Press release with links to full report here.
Matt Levine also highlights a somewhat new piece of thinking on the idea of “Universal Ownership” and how this is different (recall certain passive investors may own 3 - 5 % of all American companies in their tracking mandates).
Several large institutional investors and financial institutions, which collectively have trillions of dollars in assets under management, have formed initiatives and made commitments to achieve a net-zero economy by 2050, with interim targets set for 2030. These initiatives further support the notion that investors currently need and use GHG emissions data to make informed investment decisions. These investors and financial institutions are working to reduce the GHG emissions of companies in their portfolios or of their counterparties and need GHG emissions data to evaluate the progress made regarding their net-zero commitments and to assess any associated potential asset devaluation or loan default risks. [SEC]
Then Matt:
Notice that this is weird. This is not “investors need this information to understand the company providing the information,” but rather “look, investors these days are diversified, and many of them care about the systemic risks to their portfolios, not about how any one company runs its business.” If it’s material to an institutional investor that its portfolio be carbon-neutral, then it needs to know the carbon emissions of each portfolio company, even if those emissions are not actually material to that company.
This strikes me as very new! And basically correct, I mean: Investors are often diversified and systemic these days, so the SEC’s rules might as well reflect how investing actually works. Still it is a novel and surprising concession, asking a company to disclose stuff because it is useful to its shareholders as universal shareholders, not (just) because it is relevant to the company’s own business.