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Published on June 30, 2022 by Kim Riley
Proposed rule changes from 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 much as the agency thinks they would, according to numerous commenters.
“We believe… that some of the most burdensome aspects of the incremental disclosure would not produce benefits that outweigh the costs and, in some cases, would lead to investor confusion by requiring the disclosure of overwhelmingly voluminous, immaterial information,” said the Edison Electric Institute (EEI) and the American Gas Association (AGA) in their joint comments filed with the SEC.
The commission on March 21 proposed several rule changes in the Enhancement and Standardization of Climate-Related Disclosure for Investors with the overarching goal of ensuring that investors receive information about climate risks and greenhouse gas (GHG) emissions that is consistent, comparable, and reliable. The commission set a June 17 deadline to receive comments.
Specifically, the SEC proposes that registrants be required to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements, according to the SEC. 
The required information about climate-related risks also would have to include disclosure of a registrant’s GHG emissions, which the SEC says have become a commonly used metric to assess a registrant’s exposure to such risks. 
But according to the EEI and AGA comments, the organizations and their members think “it is vital that the commission implement rules that are useful and informative and recognize the inherent difficulty of obtaining accurate and timely material climate-related information, particularly with respect to indirect GHG emissions across a registrant’s entire value chain, and the resulting lack of comparability that these limitations necessarily produce.”
The Energy Workforce &Technology Council, which includes member companies that range in size from small sole proprietorships to large, multinational publicly traded companies, said in its filing that the council has “serious concerns” about the proposed SEC rule changes especially regarding GHG requirements.
Not only does the council think that such a change would be beyond the jurisdiction of the SEC, but “if enacted, would put a significant burden on our sector and the economy as a whole,” said Leslie Beyer, CEO of the Energy Workforce & Technology Council, in a related statement.
“This burden could put additional pressure on the energy supply chain and may discourage further U.S. energy production, which is the last thing the country and the world needs right now,” Beyer said. 
EEI and AGA also pointed out 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 is required to be reported with the cost of developing, gathering, validating, and reporting that information, as well as the cost of attestation, according to their filing.
On the same page is Eversource Energy, which provides energy delivery and water service to roughly 4.4 million electric, natural gas, and water customers through 10 regulated New England utilities in Connecticut, Massachusetts, and New Hampshire.
Regarding the level of detail, for instance, Eversource said that 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 the consolidated level. We prepare our GHG inventory at this level, which aligns with our carbon neutrality goal. However, under the proposal, we would need to prepare this for our subsidiary registrants that have public debt, even though they all have essentially the same business model, each with no emitting generation,” according to the company’s filing. “It would be a significant resource challenge to overhaul the data collection approach currently in place to satisfy this separate reporting requirement for our regulated electric subsidiaries that have no publicly issued equity securities.”
Eversource requested that the SEC not require this level of reporting, considering the additional cost involved and the limited usefulness of disaggregated information. 
EEI and AGA also commented that their members already provide significant climate-related information to investors and are industry leaders in voluntary disclosure through their industry-pioneered, first-of-its-kind, sector-wide environmental, social and governance (ESG) reporting template developed with and for investors more than five years ago.
Numerous companies agreed.
Tucson Electric Power Co. (TEP), an investor-owned utility located in Arizona that serves approximately 438,000 customers, commented that the SEC’s proposal to include climate disclosures in its Form 10-K would increase compliance costs due to accelerated filing deadlines and internal controls associated with financial reporting.
“TEP is already required to annually report a majority of its Scope 1 GHG emissions to the U.S. Environmental Protection Agency,” according to the company, which added that it also reports climate-related information and data (e.g., emissions and fuel use) to other federal and state regulatory agencies, such as the U.S. Energy Information Administration and the Arizona Corporation Commission. And TEP also voluntarily discloses on its website a majority of its material GHG emissions on EEI’s industry-specific ESG reporting template each year, according to its filing. 
“The ESG template was developed in collaboration with industry investors (and streamlines investor-useful information across two pages),” according to TEP’s filing. “These reports are either regulatory requirements that have enforcement and penalty consequences for noncompliance, or they are public-facing statements that undergo significant internal checks and have reputational consequences for reporting inaccurate or misleading information.”
Such efforts outweigh any incremental benefit the SEC’s proposed rule changes may provide above and beyond the value of the regulatory and voluntary reporting to which its investors and other stakeholders already have access, TEP said. 
National Grid plc, one of the world’s largest investor-owned energy utilities serving almost 30 million electric and gas customers and which is listed on both the London Stock Exchange and the New York Stock Exchange, concurred.
In its comments, National Grid noted that as a dual-listed business, it is already required to make comprehensive climate-related disclosures in the United Kingdom, the location of its primary listing.
“To manage the burden of compliance on foreign private issuers while also meeting the objectives of the SEC proposed rules, our principal recommendation is for foreign private issuers subject to substantially comparable climate-related disclosure requirements, such as ourselves, be exempt from complying with the proposed rules,” according to National Grid’s comments. “We believe that this recommendation would save a significant amount of effort and cost involved with complying with the requirements of multiple jurisdictions while also minimizing any unnecessary duplication and confusion, which would ultimately contradict the objectives of providing useful information for the primary users of financial reporting.”
Additionally, TEP said it’s important for the commission to note that the proposed rule also would create costs and burdens for non-registrant entities, including non-registrant electric utilities that provide power to registrants. TEP said it routinely transacts business with such non-registrant electric utilities, including privately held companies, public power entities, and electric cooperatives.
Under the SEC’s proposed changes, registrants who are customers of these entities “may require utility-specific energy emission information for their own reporting and might require verifiability of this information from non-registrant utility companies. As a result, these entities will also have new reporting and cost burdens,” said TEP in its filing.
Among several suggestions, EEI and AGA also think that the SEC’s final rule should only require prospective disclosures covering periods for which the necessary processes and controls have been able to be designed and implemented.
“With these changes, the new disclosure requirements will better balance the burden that they impose with the benefits of providing investors with more reliable, comparable, and useful information for making informed investment decisions,” according to their filing. 
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