Earlier this spring, the SEC proposed rules to enhance and standardize climate-related disclosures for companies, drawing tens of thousands of public comments
– a number many experts call unprecedented.
In the wake of those comments, the agency has announced it would issue a revised rule -- but during the interim period, many public companies have been left to wonder what, if anything, they should be doing to begin inching toward compliance with whatever the agency ultimately finalizes.
“Our advice to clients now is if you haven’t taken action yet, now is the time to start,” says Cynthia Curtis, JLL Corporate Sustainability Officer, Americas. “If you prepare now you’ll be better equipped for success when the rules go into effect, in what we expect to be the not so distant future.”
Curtis says JLL supports the objectives of the proposed rule because they are geared toward advancing transparency, which is healthy for markets, and because they support the consistency and comparability in reporting data that’s necessary to push meaningful action against climate change.
“By elevating climate disclosures to be more in line with financial disclosures, it puts the topic square in the minds of boardrooms, in finance departments, and among other stakeholders that might not have given it the attention previously. And that’s a really important point,” Curtis says. “We also believe that establishing consistency in what’s reported will help spur more investment. That’s also a good thing.”
JLL’s support didn’t come without caveats, however: in their public comment on the proposed rule, the firm stressed the importance of the SEC allowing companies the appropriate safe harbor to make good-faith efforts to comply with disclosure requirements, as well as sufficient time to ensure the disclosures are based on complete and verifiable data “rather than estimates which are more likely to need revision.”
JLL also asked the SEC to reconsider the materiality threshold that’s currently being proposed as a bright-line 1%, and to reconsider the proposed language in the rule that would require the reporting of greenhouse gas emissions disclosures to coincide with the filing of a Form 10-K. (“As a sustainability professional, that simply is not possible due to data and the timing of data collection,” Curtis notes.”)
Finally, the firm recommends changes to the timing of Scope 3 emissions reporting: “We believe that we just need more than a year in order to deal with the intricacies and difficulties associated with Scope 3 data,” Curtis says.
For those companies that may be tempted to stay on the sidelines before the rule is finalized, Greg Bolino, Global Head of Sustainability and Assets for JLL, says the time to act is now.
“Some clients are saying ‘listen, we plan to do something but with the SEC ruling, let’s wait and see,’” Bolino says. “I think the reluctance is understandable and that waiting may have some merits, but it also has risks. Waiting to plan or execute a carbon reduction strategy for policy or legislative clarity has risks of falling behind the market.”
Bolino says some US investors who aren’t yet ready to “fully take ESG into their investment thesis” may be tempted to take the time between rule revisions as a marker to see when they might want to proceed. But “we don’t advise that,” he says. “The companies that act now are going to have an easier time and be ready to comply…but more importantly they will likely have a competitive advantage.”
Curtis says the SEC appears “really heads down” on reviewing all comments but likely will want to issue a revised rule as soon as possible, potentially before the November elections. As currently drafted, the compliance would start next year, so reporting of 2023 data would begin in 2024. However, Curtis says she “fully expects” modifications to the last iteration of the proposed rule, but “regardless of the shape that final rule does take, the genie is out of the bottle. There will be some regulations and there will be greater overnight.”
Bolino reiterates that the firm’s advice to clients “is still to act now.”
“Look at the portfolio now while watching what’s going on with the SEC…Our view is that the market forces are acting more quickly than the regulatory process and to be in the game you have to be acting now,” he cautions.
“The important thing is to take a step,” Curtis says. “Don’t try to take it all in one fell swoop because that doesn’t work really with anything. Take it in bite-sized chunks, develop that plan, see where you are today and then you can start looking at where’s the value you can derive from your actions.”