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UPS, Dell, Others Call on SEC to Retool Climate Accounting Plan

June 24, 2022, 2:55 PM

Audit firms and companies including United Parcel Service Inc. and BNP Paribas SA 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 away from carbon-based energy could impact their financial performance. Among the requirements, companies must break out costs that total 1% or more of any line item affected by climate—from revenue to inventory to debt.

UPS called the accounting disclosure threshold “overly burdensome,” adding it would be “inconsistent with existing accounting standards,” in a June 14 letter to the commission.

Unlike climate, other events or transactions that may be more significant to a company’s operations but don’t exceed such a 1% threshold wouldn’t be disclosed, KPMG LLP said in its June 16 letter to the commission. “It is not clear to us that this type of disclosure is what investors are seeking, and it would likely be costly and difficult to implement,” the Big Four accounting firm said.

The letters responded to the SEC’s draft disclosure rules, which would require US-listed companies to disclose the risks that a warming planet pose to their core business and long-term profitability. Companies also would have to explain the impact to estimates and other assumptions and provide a new footnote to the financial statements.

The Council of Institutional Investors, which represents pension funds and endowments, also urged the commission to replace what it called a “bright-line 1% threshold” with the materiality standard typically used in financial statement disclosures.

Assurance Under Scrutiny

The accounting concerns didn’t stop with the financial statement disclosures. Stakeholders cautioned that companies and auditors aren’t yet up to the task of calculating and then vetting greenhouse gas emissions.

“The expertise to audit or assure climate-related metrics, targets, and other related disclosures is still at a nascent stage,” T. Rowe Price Group Inc. told the SEC. “We can foresee the adoption of different attestation standards applied by providers with varying levels of expertise. This will likely hinder investors’ ability to assess the level of comfort they should derive from an attestation report.”

Under the SEC proposal, the largest US-listed companies would report both direct and certain indirect carbon emissions and obtain a third-party review of those metrics. Those outside reviews, or assurance, would be phased-in, and audit firms as well as other professionals would be allowed to provide those services.

The American Petroleum Institute urged the commission to give companies more time to prepare to have those carbon emission metrics verified.

“The complexity of the Proposal’s requirements will involve significant technical hurdles, extensive training, and substantial coordination with assurance firms that may lack the ability to quickly ramp up providing attestation services to a significant number of additional companies,” the industry group said in its letter to the SEC.

Global Standards Wanted

Commenters also urged the SEC to closely align its rules with the International Sustainability Standards Board and ensure multinational companies can meet similar regulations under consideration in Europe and other markets.

“Global issues need global solutions,” Dell Technologies Inc. told the SEC in its letter. “The Commission has a unique opportunity to ease the burden associated with the complexity of the current disclosure framework and to ensure that neither registrants nor investors are faced with a transition from a fragmented proliferation of voluntary standards, frameworks, and metrics to a fragmented proliferation of regulated standards, frameworks, and metrics.”

The SEC has pledged to ensure its rules don’t clash with standards set by the ISSB, which has promised to reduce myriad competing and overlapping green frameworks and standards that companies report under today.

BNP Paribas asked the SEC to allow foreign issuers to report under ISSB to meet the commission’s regulations. The French financial institution said in its letter that there is room for closer alignment between the SEC’s proposal and international climate disclosure standards, arguing that consistency is “critical for an effective climate disclosure regime” for US and global investors.

To contact the reporter on this story: Amanda Iacone in Washington at aiacone@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; Butch Maier at bmaier@bloombergindustry.com