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BlackRock Asks SEC To Rethink Climate Risk Reporting Plan

Law360 (June 22, 2022, 7:23 PM EDT) — BlackRock is pushing the US Securities and Exchange Commission to reduce potential liabilities that its recent climate risk-disclosure plan could impose on companies, requesting that the agency strictly require “material” climate-related information in registration filings and that firms be allowed to furnish, not file, data specific to greenhouse gas emissions.

in to letter Friday, the investment management behemoth said it stands by the SEC’s overarching goal to collect comparable, standardized climate risk-related data from companies.

But BlackRock expressed concern that the agency may be asking firms to file information that isn’t material, which it said could water down the value of the reporting. It also argued that requiring companies to disclose GHG emissions data within existing regulatory filings could have “chilling effects” on the quality of disclosures, pressing instead for the agency to allow for the information to be furnished.

“While we applaud the commission’s efforts … we are concerned that certain elements of the proposal … will decrease the effectiveness of the commission’s overarching goal of providing reliable, comparable, and consistent climate-related information to investors,” according to the letter.

The letter was sent to the SEC by Paul Bodnar, BlackRock’s global head of sustainable investing; Kathryn Fulton, head of its US public policy group; and Elizabeth Kent, a managing director in its global public policy group.

Furnishing that information, which typically shields companies from certain liability provisions under securities laws, would help protect companies from liability and encourage the disclosure of higher-quality data, the trio argued.

“We urge regulators to adopt a liability framework that provides meaningful protection from legal liability for disclosures provided in good faith while standards continue to evolve, and that gives companies the flexibility they need to develop their disclosures without imposing a chilling effect,” according to the letter.

“The liability attached to climate-related disclosure should be commensurate with the evolving nature of that disclosure to encourage rather than discourage higher-quality disclosure,” the letter states.

The SEC proposal, released in March, would require public companies to disclose a range of data related to greenhouse gas emissions, the business risks associated with severe weather events, and those tied to the transition to a smaller carbon footprint.

It would require reporting of so-called Scope 1 and Scope 2 emissions, which are tied to companies’ direct and indirect emissions linked to operations and energy purchases. Some larger companies would also need to disclose Scope 3 emissions — tied to the emissions of their suppliers and customers — if deemed “material” or if a company has made a pledge to reduce future emissions.

But BlackRock’s letter proposes that the SEC require a form, separate from current agency regulatory filings, that would be furnished annually when it comes to the GHG data.

The company requested that the commission develop this “alternative disclosure form” for issuers to provide the Scope 1 and Scope 2 emissions estimates. On that same form, Scope 3 emissions data should be provided on a “comply or explain” basis if material, according to BlackRock. In other words, companies would either provide the Scope 3 disclosures, which are among the most difficult to gather, or explain why they cannot.

Beyond the GHG emissions data, the SEC framework would require a host of disclosures related to climate-related strategy, internal carbon pricing, scenario analyses, transition plans, and climate-related targets or goals, which would potentially be filed along with annual reports and registration statements to the SEC.

BlackRock advised the SEC to stay focused on the Task Force on Climate-Related Financial Disclosures framework, an international climate disclosure standard that the agency’s plan is based on, and to the concept of “materiality” on the additional disclosures.

This would prevent non-material information from making its way into SEC filings, which could “obscure” material information, have limited value to investors, heighten compliance costs and reduce the comparability of the data, BlackRock said.

“We strongly advocate for mandatory disclosures aligned with the TCFD framework, which we believe serves to provide investors with comparable and consistent information to assess issuers’ long-term transition plans and near-term actions to mitigate climate risks, and to ultimately make better informed investment decisions,” according to the letter.

The firm suggested that some proposed disclosure requirements might stretch beyond what is material, including detailed information about companies’ boards and how they approach climate issues.

For example, the plan asks companies to disclose the identity of directors who are responsible for climate-related oversight and to identify designated “climate expert” directors.

“We believe that robust board oversight with respect to climate requires a whole-of-the-board approach, and the identification of ‘specialist’ directors is not conducive to a holistic undertaking by the board,” the letter states. “We also respectfully disagree with the proposal to require issuers to describe whether and how a board sets climate-related targets and goals, as it implies that climate target-or goal-setting is an appropriate board responsibility.”

–Editing by Adam LoBelia.

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