Posted on Tuesday, June 15, 2021

XBRL US submitted a letter responding to the Securities and Exchange Commission (SEC) request for input on Climate Change Disclosures. Key recommendations made in the letter:

  • The SEC should play a key role in the process of standardizing climate-related disclosures, to ensure that standards set globally are suited for U.S. listed companies, as many U.S. companies will be called upon to provide this data to investors regardless of SEC involvement.
  • Influencing and participating in global standard setting in this field will lower overall compliance costs and reporting burden for U.S. companies. On current trajectories, it seems clear that around the world, mandated corporate reporting will include significant carbon-related financial disclosures in the near term. This will impact U.S. companies with dual listings directly, but more importantly, is likely to impact all internationally operating U.S. companies and all U.S. issuers with securities offered, directly or indirectly, to international investors. Ensuring that at least the “basic building blocks” of this reporting is globally consistent will materially reduce the costs of sourcing, processing, control, and review/assurance as companies respond to the new requirements. This is particularly true in relation to digital disclosures as aligning data tags and reporting frameworks can significantly reduce preparation costs in this field.
  • The Commission should encourage the use of existing sustainability standards and frameworks which are already widely used by U.S. listed companies, and that are managed by independent nonprofit standards organizations that have expertise in ESG reporting and data use. Some of the more broadly used standards organizations have already begun disciplined collaboration to move towards a more consistent reporting framework. Leveraging existing standards and frameworks will reduce reporting burden on issuers and the efficiency of data collection by investors and others already using these metrics.
  • Climate-related disclosures, like financial disclosures, should be made available to data consumers in machine-readable format, by leveraging the XBRL specification which is the global standard for financial data securities reporting.
  • The Commission should begin the learning process now, by allowing issuers to submit structured climate-related data on a voluntary, furnished (not filed) basis, to limit the liability for those who opt to report; and by leveraging the XBRL Taxonomy developed by the Sustainability Accounting Standards Board (SASB) to render the data in machine-readable format. Those opting in should be allowed to report the XBRL-formatted data and leverage the climate-related reporting standards they deem to be most appropriate, based on their industry and reporting situation.
  • While establishing a single global standard for all climate-related disclosures might be optimal, in practice, sustainability factors about companies may differ due to size, industry, or domicile. Factors that are material for one company, may not be material to a company in a different industry or location. The Commission should carefully balance the benefits of comparable disclosure against the costs of reporting. Companies should not be required to report data that is not material. As described above, we support moving towards a common standard for certain baseline metrics that are globally compatible; with localized extensions to accommodate industry and jurisdictional differences where appropriate. A “building block approach” makes sense, based on these foundations to facilitate different levels of additional or specialized reporting requirements in specific situations.
  • Furthermore, we support the use of the Legal Entity Identifier (LEI) to help investors and other users of climate-related data better understand corporate impact, not just of a specified company but of the totality of companies related by the global hierarchy of beneficial ownership. Climate-related data is highly supply chain dependent, therefore mechanisms like the LEI should be used to identify the provenance of climate-related issues identified through climate data reported.

Read the XBRL US letter: XBRL US Response on Climate Change Disclosures

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