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Creating a Framework for Impactful ESG Data

  • Writer: Bailard
    Bailard
  • Jun 28, 2022
  • 3 min read

Updated: Jul 18, 2022

Blaine Townsend, CIMA®, Director of Bailard’s Sustainable, Responsible, and Impact Investing Group, dives into the SEC’s proposed rule for the enhancement and standardization of climate-related disclosures to better inform investors.


June 30, 2022


For long-term investors, understanding risks associated with climate change has become more than just a driving force behind ESG investing. It now stands as a central focus in the capital markets. In fact, the importance of digging into climate-related risks has helped ESG investors put a spotlight on the need for better disclosure across a broad array of environmental, social, and governance issues. Much of the ESG-related data is disclosed voluntarily by corporations—and certainly not standardized—which poses a real data reliability challenge to investors. Particularly for data that relates to climate, the stakes are too high to keep disclosures voluntary.

Creating a standardized framework for disclosure is no easy task, but the Securities and Exchange Commission (SEC) is attempting to do it this year via The Enhancement and Standardization of Climate-Related Disclosures for Investors. This Proposed Rule would require companies to disclose their greenhouse gas emissions so that investors can utilize that information in their decision-making.

The material financial risks associated with climate change are two-fold. The risk of future regulation could affect a company’s bottom line if they’re not compliant. Additionally, climate change also poses a physical risk to a company’s facilities, operations, and supply chain. At this point, some companies are releasing their greenhouse gas emissions data and some are not. For those that are, the way they’re releasing the data or making the calculations is inconsistent. Investors want consistent, comparable greenhouse gas emissions data in order to make the most financially-sound investment decisions.

The SEC’s Proposed Rule was published in March and investors were given 90 days to review and comment. Bailard—along with its stakeholder partners, ICCR, Ceres, As You Sow, CDP, and PRI—submitted comment letters to the SEC first and foremost to support the rule. But the comment letters also served to provide input on how to strengthen the rule further, including:

  • All companies, no matter their size, should be required to disclose their scope 3 (supply chain and customer) emissions, if they are deemed material

  • The SEC should guide materiality determinations, and companies should disclosure their rationale when scope 3 emissions are deemed immaterial

  • Phase out the safe harbor from liability for scope 3 emissions data over time, as it reduces the motivation to seek and report precise information

  • Corporate boards should be required to assess the alignment of climate lobbying and advocacy positions with climate transition plans

  • Companies should disclose which board directors and committees have climate lobbying and policy oversight and accountability

  • Climate change and emissions-related risks to fenceline communities caused by corporate operations should be disclosed

  • Corporate disclosure of whether or not (and, if so, how) executive compensation is tied to climate-related performance

The SEC’s Proposed Rule is already strong and would fill a crucial gap for investors as they attempt to make informed, long-term decisions about investment portfolios. These amendments would create an even more robust, standardized Final Rule, allowing investors to better assess climate-related risks.

Now that the public comment period is over, the SEC is assessing the comment letters received and will incorporate the feedback into its Final Rule, which would take effect by year-end. With that, larger public companies would start reporting in 2024 with the smaller companies beginning to report in 2026.


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the 9:05 is produced by the Asset Management Group of Bailard, Inc. The information in each article is based primarily on data available as of its publication date and has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation are not guaranteed.

This publication has been distributed for informational purposes only and is not a recommendation of, or an offer to sell or solicitation of an offer to buy any particular security, strategy or investment product. It does not take into account the particular investment objectives, financial situations or needs of individual clients. Any references to specific securities are included solely as general market commentary and were selected based on criteria unrelated to Bailard’s portfolio recommendations or the past performance of any security held in any Bailard account. All investments have risks, including the risks that they can lose money and that the market value will fluctuate as the stock and bond markets fluctuate. Asset class specific risks include but are not limited to: 1) interest rate, credit and liquidity risks (bonds); 2) style, size and sector risks (U.S. stocks); 3) increased risk relative to U.S. stocks due to economic or political instability, differences in accounting principles and fluctuating exchange rates – with heightened risk for emerging markets and even higher risks for frontier markets (international stocks); and 4) fluctuations in supply and demand, inexact valuations and illiquidity (real estate). Certain countries (particularly emerging and frontier markets) can have higher transaction costs and greater illiquidity than the U.S. The volatility of real estate may be understated due to inexact and infrequent valuations. Real estate has significant risks and is not suitable for all investors. The application of various environmental, social and governance screens as part of a socially responsible investment strategy may result in the exclusion of securities that might otherwise merit investment, potentially resulting in higher or lower returns than a similar investment strategy without such screens. There is no guarantee that any investment strategy will achieve its objectives. Charts and performance information portrayed in this newsletter are not indicative of the past or future performance of any Bailard product, strategy or account, unless otherwise noted. Market index performance is presented on a total return basis (assuming reinvestment of dividends), unless otherwise noted. Past performance is no guarantee of future results. All investments have the risk of loss. This publication contains the current opinions of the authors and such opinions are subject to change without notice. Bailard cannot provide investment advice in any jurisdiction where it is prohibited from doing so. 

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