A coalition of investors and investment advisers recently asked the Securities and Exchange Commission (SEC) to issue guidance under Regulation S-K to require corporate disclosure of greenhouse gas emissions from biofuels and other biomass-based products.
Reg S-K lays out the reporting requirements for public companies in periodic reports filed with the commission.
The coalition consists of groups that believe environmental, social and governance (ESG) information is material, and they want the SEC to make sure that publicly-traded companies do not provide misleading ESG information to investors. And the group’s call on the SEC to write the disclosure rule comes as concern about climate change has led to increasing use of biomass — or biological materials — as a substitute for fossil fuels to generate energy. Biomass is theoretically renewable, so it is often considered to have lower net greenhouse gas emissions. But the group explained companies that manufacture and sell biomass-based fuels and products often make dubious or unsubstantiated claims that the products reduce greenhouse gas emissions.
“As investors, we would strongly benefit from accurate and comparable disclosures in which any claims of emissions levels, and by extension climate benefits, are adequately substantiated,” the groups wrote in a Feb. 27, 2019, petition to the SEC. The Partnership for Policy Integrity drafted the petition, and 27 other groups signed the letter, including Boston Common Asset Management, LLC and Northwest Coalition for Responsible Investment.
“The growth of these products and a surge of interest in investments that promise to reduce GHG emissions mean that such claims are likely to be material to an increasing number of investors,” the Partnership for Policy Integrity wrote. “A survey of public-facing materials and SEC disclosures of 10 U.S. companies selling biomass-based fuels and products revealed that in each case, disclosures about GHG emissions were largely unsubstantiated and sometimes misleading.”
The disclosure requirement for biogenic emissions would be consistent with the SEC’s 2010 guidance on climate change and protective guidance adopted by the Federal Trade Commission (FTC), the coalition said.
The Partnership for Policy Integrity was referring to the commission’s Release No. 33-9106, Commission Guidance Regarding Disclosure Related to Climate Change, which requires public companies to inform investors about the material risks they face from climate change, including lawsuits, business problems, regulatory supervision or international treaties. The significant effects of climate change, such as severe weather, rising sea levels, loss of farmland, and the declining availability and quality of water, have the potential to affect a public company's operations and financial results and should be disclosed.
The group noted that the capital market regulator considers a fact to be material to investors “if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision, or, put another way, if the information would alter the total mix of available information.”
“Given the interest in ESG investing and investments specifically in biomass-based fuels and products, plus a growing focus on climate change mitigation, information about biogenic greenhouse gas emissions and claimed climate benefits from companies manufacturing or using these products are likely to meet the Commission’s standard for material facts that must be disclosed to investors,” the coalition wrote.
The SEC is unlikely to move on the issue under Chairman Jay Clayton. He and SEC Commissioner Hester Peirce expressed skepticism about a separate ESG disclosure requirement, saying the securities laws already require all material information to be disclosed.
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