Ethical Partners was pleased to write to the U.S Securities and Exchange Commission (SEC) last week to communicate our support of the S7-10-22 – the Enhancement and Standardisation of Climate-Related Disclosures for Investors. Download our full letter below.
Ethical Partners believes that this kind of advocacy is crucial to ensure regulators better understand the importance of mandatory climate disclosure in enabling investors to be able to manage the systemic financial risks associated with climate change, which we believe is at the core of an efficient future securities markets and a thriving economy. We also believe that it is crucial for investors to leverage their shareholder voice and the privilege and responsibility of our entrusted capital to be part of these important conversations about climate policy and regulation.
We are also supportive of this policy because of the leadership it displays to Australian regulators regarding the management of climate related financial risks, but also because, if adopted, the proposed rule would also apply to Australian companies that issue debt or have securities listed in the US, as it will apply to foreign private issuers. Australian companies that do business with US companies may also be required as a condition of doing so, to provide disclosures to their foreign counterparts to allow them to comply with the required disclosures, clearly benefiting Australian investors and the Australian superannuants on whose behalf we wish to properly address climate risk in our investments.
In our letter, Ethical Partners was able to share with the SEC our belief that it is of the utmost necessity for financial markets to properly price and act on the physical and transitional risks and opportunities of climate change. This integration of climate risk and opportunity into our investment and equity pricing is, however, only possible by being able to access consistent, standardised, comparable, quality disclosures from listed companies, and as such we welcome the SEC’s proposed enhancement and standardisation of climate-related disclosure for investors.
We were also able to share our belief that the absence of adequate information on climate risk and opportunities is already contributing to systemic financial stability risks and barriers to investment in low-emissions and climate resilient economic activity. This includes overvaluation of emissions-intensive activities, under-pricing climate change risk and mispricing of assets, which results in poor decision-making and the misallocation of capital. We also communicated to the SEC that voluntary reporting approaches on climate risks have, to this point, proven insufficient. The quantity and quality of disclosures (including across ASX listed companies) is currently inadequate for investors to efficiently respond to and manage material climate risks and opportunities, and for governments and financial regulators to address system risks to financial stability.
Therefore, we shared with the SEC how we believed that their mandatory reporting policy will be instrumental in assisting investors to improve how they evaluate a company’s climate initiatives and policies, and the resulting risks and opportunities. We were also pleased that the SEC rule making included industry specific metrics, and importantly, the disclosure of Scope 3, and regular reporting of mandatory information on risk exposures, business opportunities, impacts on strategy, and emissions reporting and management. We also strongly encouraged that the rule making included the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), a standard becoming well adopted across global investors and companies alike. This is something that we have engaged on regularly in the ASX listed company space, as well as with ASIC, APRA, AASB and Treasury and Cabinet over the past few years.
Ethical Partners has also recently signed the Investor Statement of Essential Principles for SEC Climate Change Disclosure Rule-making, coordinated by CERES, and representing over $4 trillion in AUM of investors, corporations and NFP organisations in support of this rule making.
We agree with this statement that climate change poses a systemic risk to the economy and our livelihoods through physical risks to real assets from climate related weather events, and through transition risks posed by regulatory, technological economic and litigation changes as the economy shift to net-zero. We also agree strongly with this statement that these risks can be unexpected, and as noted by the IPCC, compound. It is also clear that climate change poses a variety of material risks to companies of all sizes, and is therefore, an area of crucial importance for investors to understand, manage risk, find opportunity, protect their clients’ capital, and advocate for better policy.
Ethical Partners are also pleased to be involved in further policy advocacy on this and many other matters through our membership of the PRI Global Policy Reference Group and the IGCC Policy and Advocacy Working Group in their submissions on this matter. We look forward to continuing our advocacy on climate related disclosures with both Australian regulators and ASX listed companies over the coming year, and sharing more of these advocacy initiatives in our engagement report later this year.
