Washington, D.C. –
What’s happening: BPI today commented on the SEC’s climate disclosure proposal. The measure would impose broad requirements on registrants, including detailed financial accounting of climate-related risks, information on indirect emissions and numerous requirements for disclosure of risk management policies and practices. Despite many banks already voluntarily disclosing climate information on their own, such an overly prescriptive approach from the SEC could undermine the goal of providing useful information to investors. Furthermore, the proposal fails to account for the interaction with the prudential bank regulatory framework.
What BPI is saying:
“Banks share the SEC’s goal of communicating material climate risks transparently to investors and managing those risks in a prudent manner. However, the proposal’s overly detailed requirements would lead to a mountain of information that would be misleading and of little use to investors. This is particularly the case given the significant limits of climate data today. It is important to ensure that the climate-related disclosures produced are useful to investors.” – Lauren Anderson, BPI senior vice president and associate general counsel.
Why it matters: Investors are increasingly seeking more information on how firms will be affected by climate-related risks, but climate risk data is in the early stages of development, with significant data gaps and inaccuracies. Despite the fact that many banks are fairly advanced in producing voluntary climate disclosures, the data challenges are even more problematic for them as banks must rely on data from their clients to produce their climate disclosures. Taking a highly prescriptive approach to incorporating climate risk data into disclosures could lead to a false sense of precision when it comes to climate reporting and end up misleading investors. Given the data challenges and associated risks, it is important that regulators recognize the need for a flexible framework that will allow disclosures to improve over time.
In particular, the proposed requirements for financial reporting of climate-related risks on a disaggregated, line-by-line basis and to disclose indirect or “Scope 3” emissions should be removed, or at a minimum, significantly narrowed.
Key takeaways:
- The proposal’s Regulation S-X financial reporting requirements are largely inoperable, will not result in useful disclosure for investors and should be removed or, at a minimum, significantly narrowed.
- The Scope 3 emissions disclosure requirements are overly broad as drafted and should be significantly narrowed to focus on registrants’ material targets or goals.
- The risk management aspects of the proposal should be modified so that they do not front-run, and are consistent with, ongoing efforts by the federal banking regulators.
- The proposal’s board and management governance provisions should be modified to be less prescriptive and not place outweighed importance on one potential risk factor that public companies must manage.
- The proposal’s cost-benefit analysis likely under-estimates costs by several degrees and has not demonstrated the purported benefits outweigh even the identified costs.
- The proposal should be revised to permit foreign private issuers (FPIs) to comply using home country standards.
- To avoid conflicts of law and implementation challenges, the proposal should permit alternative compliance by using international standards.
- The proposal should not require third-party attestation of Scope 1 and Scope 2 GHG emissions disclosures.
For our previous work on climate, see the links below:
- BPI Comments on FDIC Climate-Related Financial Risk Management Proposal for Large Financial Institutions
- On Climate Disclosures, A Common Language is Key, But Challenges Remain
- BPI Comments on OCC Principles for Climate-Related Financial Risk Management for Large Banks
- BPI Comments on Basel Proposal for Management and Supervision of Climate-Related Financial Risks
- Bank Climate Risk Guidance Needs Flexibility
- Are Loans to Carbon Intensive Firms the New Subprime?
- Does CRISK Really Measure Banks’ Exposure to Climate Risk?
- BPI Statement on FSOC Climate Report
- Credit Losses from Declining Industries: Lessons for Climate-risk Modeling
- The FSB’s Climate Roadmap—Are We on the Road to a New International Standard?
- BPI Statement on HFSC Consumer Protection and Financial Institutions Subcommittee Hearing on Climate Risk
- Green Lending: Is Regulatory Exuberance Irrational (and a Little Dangerous)?
- SEC Should Build off its Traditional Disclosure Principles When It Comes to Climate
- Climate Risk and Bank Capital Requirements
- Regulators Ask Banks To Assess Climate-Related Risks From Largest Counterparties, but Data Gaps Persist
- BPI Welcomes Dialogue on Climate-Related Risks as Senate Banking Committee Holds Hearing
- Get the Transition to Green Financing Right
- Climate Risk Test Asks Banks to Look Too Far Down the Road
- Challenges in Stress Testing and Climate Change
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About Bank Policy Institute.
The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.
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