CAQ Comments on SEC Climate Disclosure Rule Proposal, Supports Objectives but Identifies Needed Changes
Tuesday, June 21, 2022
Proposed rule, “The Enhancement and Standardization of Climate-Related Disclosures for Investors,” could provide investors with clarity around climate information, but CAQ identified several reporting challenges
Washington, D.C., June 21, 2022 — The Center for Audit Quality (CAQ) in a comment letter to the Securities and Exchange Commission (SEC) voiced support for requiring certain registrants to subject Scope 1 and Scope 2 greenhouse gas (GHG) emissions disclosures to attestation as this will enhance the reliability and quality of these disclosures.
“For years, the CAQ has recognized the value of company-prepared climate information for investors and the role public company auditors can play,” said Julie Bell Lindsay, Chief Executive Officer of the CAQ. “Research shows that assurance over climate-reporting when performed by a public company auditor offers increased investor protection compared with other assurers.”
The reliability of ESG reporting is just one critical issue to aid investors in evaluating climate information; comparability also proves essential to investor trust and confidence. In its response to the SEC’s proposal, the CAQ expressed its support for a globally accepted ESG reporting system that is built from existing standards and frameworks.
The CAQ also identified a few noteworthy challenges and solutions for the current proposal, including:
- Organizational boundaries for GHG emissions disclosures: Many companies voluntarily report climate-related information using different boundaries from the SEC’s proposal. As a result, companies may encounter reporting challenges and burdens as they move toward reporting under a different boundary.
- GHG emissions methodology: Specifying in the final rule that a widely used framework, such as the GHG Protocol, should be used will help support GHG emissions disclosures being more comparable from company to company and limit companies from opting to use bespoke methods.
- Regulation S-X proposed amendments: The proposed financial statement metrics requirements as written will not achieve the intended objectives and will result in various practical implementation challenges. The SEC should consider alternatives to help focus companies on preparing more meaningful, cost-effective climate-related disclosures that are comparable from company to company.
Additionally, the CAQ provided an alternative phased in approach by both disclosure area and registrant type to provide registrants with more time to prepare for aspects of the disclosure areas.
“Despite the challenges we identified, the SEC’s climate proposal is an important step forward to provide investors, public companies and other capital market stakeholders with clarity around information that is increasingly being used to make investment decisions,” said Lindsay. “We look forward to continued dialogue with the SEC and other stakeholders as this rule is finalized.”
The CAQ’s full comment letter is here.
About The Center for Audit Quality
The Center for Audit Quality (CAQ) is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets. The CAQ fosters high-quality performance by public company auditors; convenes and collaborates with other stakeholders to advance the discussion of critical issues that require action and intervention; and advocates policies and standards that promote public company auditors’ objectivity, effectiveness, and responsiveness to dynamic market conditions. Based in Washington, DC, the CAQ is affiliated with the American Institute of CPAs. For more information, visit thecaq.org.
Manager of Communications