The Exchanges

Q Um, the final rule did not, it removed scope three. And so why, like what, what happened in the interim there? Yeah.

A With the scope three, I think the hard part is a lot of the, it's hard to gather that data, and it's hard to, for companies, especially, you know, we think about large accelerated filers, likely a lot of them are probably already reporting scope three. Many of them probably are, so it's less impactful, to be honest. I think with the removal of scope three, I think the impacts are more on smaller companies and obtaining that information. All the estimations and judgment that goes into reporting scope three is difficult to do. Um, and it can be a barrier for many companies to consider the scope three reporting, so I think that's where some of the considerations came in, is the amount of lift that a company would have to go through to report scope three, and then just the completeness and accuracy of those data sources.

AI assessment note: “I think that's where some of the considerations came in, is the amount of lift”

Q things. So let's talk about both of those ecosystems a little bit and how they get affected by this rule. Maybe starting with the sort of carbon accounting side. Um, So obviously losing scope three from the SEC rule on its own seems like it would be a big blow to that world, but if everybody's going to have to do it anyway because of California, does it really matter?

A Yeah, I don't know if it really does, to be honest. I think we're going to see a lot of these reporting tools are going to be utilized, and I think companies need help because that's the part, especially on the E side, like the S and the G, a lot of companies are already Doing things when we think about ESG reporting related to the S and the G, even the governance aspect with SEC. I mean, there's board roles of oversight and governance in place, but the E is what's going to take the most effort, is how do you quantify your greenhouse gas emissions, and then having the rigor of assurance over that information is going to be more of a lift for a lot of companies, especially as we move to reasonable assurance and getting those data sources to make sure that they're complete and accurate. And then, too, with these tools, I mean, They're going to have to make sure that they have appropriate controls within these, these tools as well around the information and data that they're storing in there, the reports they're pulling, um, from a completeness and accuracy perspective too.

AI assessment note: “Yeah, I don't know if it really does, to be honest.”

Q you've got, uh, some bits of things on stock exchanges. You've got this EU rule that is coming into effect, but hasn't fully come into effect. You've got California, which we have, we haven't talked about in detail, but came up with its own thing. And then up shows finally the, the SEC rule. So can you just give me the high level overview? What does the SEC rule mandate?

A Yep, so the SEC is focused on climate-related risks and the financial impacts of those risks. Um, material, too, material impacts. So thinking about materiality is a key aspect here, is what is material from an impact perspective? There are specific thresholds for reporting what those material amounts are. Um, and then also greenhouse gas emission reporting, and that's just scope one and scope two reporting, and doesn't include all public companies. It's just large accelerated filers and accelerated filers That have to report their scope one and two. So with California, California has scope three in the long-term range of reporting as required. With SEC, there's no scope three reporting requirements, and it doesn't impact all public companies. So there's specific requirements for large accelerated filers and accelerated filers for reporting their scope one and two and obtaining attestation, limited review over the Those scope one and scope two. So it's not as impactful from that perspective, from a reporting of greenhouse gas emissions, um, with the SEC as it originally was proposed, including scope three in the original proposal that was the, um, that wasn't fully adapted for scope three.

AI assessment note: “SEC is focused on climate-related risks and the financial impacts of those risks”

Q Let's talk about that for a minute, what's happening elsewhere, uh, and then we can layer on top of that what the SEC just added. So if I'm a, if I'm a corporation, let's say I'm a multinational corporation, like outside of, but prior to this new SEC rule, uh, What are my requirements with regard to climate disclosure?

A Well, there's the CSRD in the EU, and that's just going into effect. So there's nothing, you know, to date as significant as what we're seeing with CSRD and SEC. There's specific rules and requirements around some of the, uh, exchanges. So as you think about the London Stock Exchange, there's TCFD, um, disclosure reporting, similar to that from a climate risk perspective, but holistically, nothing is As significant as what we're seeing to date around the impact to companies, both public and private. Even with the international side, too, like, if we think about EU, there's so much double materiality, the number of metrics that have to be reported, and that's just coming to, like, now. Like, companies are preparing to report in twenty-twenty-five, um, so there's a lot of work that's being done. If you have operations in the EU, Or I'm thinking from like a U.S. company perspective, that's typically the most impactful piece for an international company.

AI assessment note: “Well, there's the CSRD in the EU... London Stock Exchange, there's TCFD”

Q What is your sense of how this rule has, uh, been regarded, the ultimate final rule, from large companies that are going to be subject to this reporting?

A I think many, when we think about large accelerated filers, a lot of them are reporting a lot of this information within their CSR reports or within their sustainability reports. If they're multinational, they're, they're doing this work to date, and so I think that's the piece that large accelerated filers likely have reporting that they're executing to date, so it's probably not a significant lift. Where I think the SEC probably has less of an impact is With the scope three removal, there was this fear by many, you know, private companies that they were, they're within the scope three of many of these larger companies, so then they would have to be restart reporting their scope one and two to some of these larger organizations. So I think that trickle-down effect is something that is likely not going to occur or be as impactful to date, but then I always get into, like, there's California, so I don't know. There's a whole aspect of California, and that's private and public companies. Who doesn't Do, you know, business in the state of California if you're a large company. I think that's going to be a hard impact for many companies and organizations, private and public. So it's kind of like, SEC is here, but California is kind of probably more impactful from a private company perspective.

AI assessment note: “reporting that they're executing to date, so it's probably not a significant lift”

Q So was there anything, I mean, it was sort of in the ether that particularly in the week ahead of the final rule that scope three wasn't going to be in there. Was there anything in the final rule that surprised you?

A Uh, Surprise me. Yeah. I mean, the scope three piece is huge. Uh, I don't think there's anything that was overly, I mean, I think everyone anticipated scope three was going to be out after that was kind of leaked earlier on, and I think, too, just the amount of, what, 16,000 comment letters, like, crazy, right? So, companies were, you know, obviously communicating the challenges that they were anticipating facing with scope three disclosure, so, um, I think many people anticipated that piece. Um, yeah, I mean, the one thing I think interesting that was removed but makes sense is some of the identification of board members with the climate risk background. Like, talking about and identifying if there's someone on your board who has this expertise. Similar to what we see with, like, cybersecurity. Like, who's on your board who has a cyber expert? So some of those aspects I think are interesting.

AI assessment note: “the one thing I think interesting that was removed but makes sense is some”

Q Do we expect or do we see legal challenges as a base on the basis of California having sort of superseded the SEC?

A Well, I, I think there's already some legal challenges in California that are being faced with that regulation. I think, too, I mean, we're seeing other states propose, it's almost word for word, similar to California. So in New York, Illinois, and that's the piece that I think is going to become complex if you're thinking about companies in the United States having to report to all these different states utilizing, you know, with California, they're going to utilize a, a submission platform for your greenhouse gas emissions so they can see all the different emissions from different companies. So thinking about a company who has operations in all these different states having to report, I mean, a lot of the information and data is similar, but just the exercise of, oh, here's my submission to this platform in this state of my greenhouse gas emissions, or uploading and making sure that you're tagging all of your, you know, risk reports from a climate risk impact perspective. I think that's going to be the piece that could become a lot of work, um, for organizations, both public and private, with a lot of these regulations.

AI assessment note: “I think there's already some legal challenges in California that are being faced”

Q And then let's talk about the other end of the spectrum. So all this data becomes public on all these companies. Um, what is emerging? What are you seeing emerge to sort of like translate that data into investment decisions of one kind or another?

A Yeah. So, I mean, there's all the raters and rankers and utilizing different metrics, and they all have different methodologies. Um, so I can see, you know, if there are specific investors who have interest in specific, you know, emission reduction goals and targets, um, they, they're likely maybe pressure for some companies to have stated targets and goals. And I think that's going to be what's interesting as companies start to baseline. So the first time they're going through the reporting process, they're baselining, they're reporting their scope one and scope two, what comes next? Are there going to be expectations then for emission reduction? Now, to be clear, there's nothing within the SEC disclosure that requires any kind of emission reduction, so I, I want to be clear about that.

AI assessment note: “there's all the raters and rankers and utilizing different metrics”