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Third comment on the SEC Proposed Climate-Related Disclosures
Many greenhouse gases
The comment period for the SEC’s proposed Climate-Related Disclosures rule closes soon. My first two comments are:
Our third comment is to do with the lack of information to do with different greenhouse gases.
One of the key goals of the rule is to establish objective reporting. In the press release that accompanied the release of the proposed rule Chairman Gensler said, “I believe the SEC has a role to play when there’s this level of demand for consistent and comparable information that may affect financial performance.” The key words here are ‘consistent’ and ‘comparable’.
My comments are to do with the fact that, in its present form, the rule incorporates a high degree of subjectivity. This means that company reports will not be consistent or comparable. The first comment was to do with the complexity, difficulties and subjectivities to do with Scope 3 reporting. The second comment was to do with the definition of forward-looking risk. Estimating any type of risk is highly subjective and prone to error. This is particularly true with regard to a highly complex issue such as climate change.
This third comment is on the same theme. The term ‘greenhouse gas’ usually refers to emissions of carbon dioxide. There are, however, many other greenhouse gases. They include: methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen trifluoride. Although these gases are emitted in relatively small quantities, some of them are much more effective at absorbing and emitting radiant energy in the infrared range than carbon dioxide. Most companies know very little about the quantities of these gases that they are emitting. It is plausible that they have a bigger impact than generally acknowledged. For example, in its Sixth Assessment reports the IPCC discussed how methane releases are much larger than previously understood.
Asking third party companies — particularly those that are overseas — to report on their emissions of these other greenhouse gases will be a major challenge, and will lead to many gaps in the reporting. Hence the reports will not be consistent or comparable. Indeed, companies will be stretched to determine their own Scope 1 and 2 emissions when all these different gases are considered. Therefore, once more, it is recommended that work on Scope 3 reporting be deferred until Scope 1 and 2 work is completed.
Once more, I conclude my comment with these sensible words from the U.S. Environmental Protection Agency.
Scope 3 emissions for one organization are the scope 1 and 2 emissions of another.