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Joint Comments to SEC on its Proposal to Enhance and Standardize Climate-Related Disclosures

Together with the Environmental Defense Fund and Professor Madison Condon of Boston University School of Law, we submitted three sets of comments to the Securities and Exchange Commission (SEC) in support of its Proposed Rule on the Enhancement and Standardization of Climate-Related Disclosures for Investors (Proposed Rule). The Proposed Rule would require publicly traded companies to disclose important information about the extent to which climate change is already affecting their financial performance, their approach to climate-related risk management, their climate-relevant governance structures, and their greenhouse gas emissions, which serve as a proxy for exposure to risk from policy- and market-driven shifts to a clean-energy economy.

Our first set of comments focuses on the SEC's economic analysis of the Proposed Rule. We commend the Commission for complying with relevant case law and internal guidance on cost-benefit analysis; offer additional evidence of the Proposed Rule's benefits to investors, capital markets, and the public; and recommend steps that the SEC could take in the final rule to provide additional clarity and context regarding its findings.

Our second set of comments supports the SEC's justification for two aspects of the Proposed Rule: its largely prescriptive approach to climate risk disclosure and its incorporation of elements and concepts from existing, third-party disclosure frameworks. We find that the SEC has provided good and legally sufficient reasons for the Proposed Rule's largely prescriptive approach but encourage the Commission, in the final rule, to more thoroughly explain that the approach is consistent with prior agency policy. We also conclude that the SEC has adequately explained its partial incorporation of third-party frameworks but suggest ways to strengthen this justification in the final rule.

Finally, our third set of comments examines a wide range of regulatory precedents for the Proposed Rule. We rebut claims that the SEC is inappropriately acting outside of alleged subject-matter boundaries on its authority, as well as assertions that the Proposed Rule impermissibly requires disclosure of immaterial information, uncertain future risk, and detailed governance information. On the contrary, our review of nearly sixty years of regulatory history shows that the Proposed Rule is consistent with the Commission’s historical understanding of its general disclosure authority under the Securities Act of 1933 and the Securities Exchange Act of 1934.