Auditing firms and companies including United Parcel Service Inc. and BNP Paribas SA have urged the SEC to revamp onerous climate accounting requirements as the regulator considers a major expansion of corporate reporting.
The Securities and Exchange Commission’s March climate proposal calls on companies to detail how floods, droughts and the transition to carbon-based energy could impact their financial performance. Among the requirements, companies must itemize costs that total 1% or more of any climate-affected line item, from revenue to inventory to debt.
UPS called the accounting disclosure threshold “too onerous,” adding that it would be “inconsistent with existing accounting standards,” in a June 14 letter to the commission.
Unlike weather, other events or transactions that may be more material to a company’s operations but do not exceed such a 1% threshold would not be disclosed, KPMG LLP said in its June 16 letter to the committee. . “It’s not clear to us that this type of disclosure is what investors are looking for, and it would likely be expensive and difficult to implement,” accounting firm Big Four said.
The letters were in response to proposed SEC disclosure rules, which would require US-listed companies to disclose the risks a warming planet poses to their core business and long-term profitability. Companies should also explain the impact on estimates and other assumptions and provide a new footnote to the financial statements.
The Institutional Investors Council, which represents pension funds and endowments, also urged the commission to replace what it called a “1% clear line threshold” with the materiality standard typically used in statements of financial statements.
Insurance under review
Accounting concerns did not stop at financial statement disclosures. Stakeholders have warned that companies and auditors are not yet up to the task of calculating and then verifying greenhouse gas emissions.
“Expertise to audit or guarantee climate-related metrics, targets, and other related information is still at a nascent stage,” T. Rowe Price Group Inc. told the SEC. “We can anticipate the adoption of different certification standards applied by providers with different levels of expertise. This will likely hamper investors’ ability to gauge the level of comfort they should derive from an attestation report.
Under the SEC’s proposal, the largest U.S.-listed companies would report both direct and some indirect carbon emissions and get a third-party review of those metrics. These external reviews, or assurances, would be phased in, and audit firms and other professionals would be allowed to provide these services.
The American Petroleum Institute urged the commission to give companies more time to prepare to have those carbon emissions measurements audited.
“The complexity of the proposal requirements will involve significant technical hurdles, extensive training and substantial coordination with insurance carriers that may not be able to quickly provide attestation services to a significant number of additional businesses. “, said the industry group in its letter. at the SEC.
Global standards sought
Commentators have also urged the SEC to closely align its rules with those of the International Sustainability Standards Board and ensure that multinational companies can comply with similar regulations being considered in Europe and other markets.
“Global problems require global solutions,” Dell Technologies Inc. told the SEC in its letter. “The Commission has a unique opportunity to alleviate the burden associated with the complexity of the current disclosure framework and to ensure that neither registrants nor investors face a transition from a fragmented proliferation of standards, frameworks and from voluntary measures to a fragmented proliferation of regulated standards, frameworks and parameters.
The SEC has pledged to ensure that its rules do not conflict with the standards set by the ISSB, which has promised to reduce the myriad of competing and overlapping green frameworks and standards under which companies report today.
BNP Paribas has asked the SEC to allow foreign issuers to report under ISSB to comply with the commission’s regulations. The French financial institution said in its letter that there was room for closer alignment between the SEC’s proposal and international climate disclosure standards, arguing that consistency is “critical for an effective regime Disclosure Statement” for U.S. and global investors.
