Modern Money SmartPod

Diving Into the SEC's Proposed Climate Disclosure Rules

May 17, 2022 SmartBrief Season 2 Episode 8
Modern Money SmartPod
Diving Into the SEC's Proposed Climate Disclosure Rules
Show Notes Transcript

While the comment period for the Securities and Exchange Commission's proposed rule on climate-related disclosure has been extended into June, the proposal offers a solid hint as to how the final rulemaking might take shape. Jamie Gamble, Managing Director at PwC, and Maggie Peloso, Partner at Vinson & Elkins, join the show to dig into the details of the proposed rule and offer tips on what companies should be doing now ... yes, right now ... to prepare for the final rulemaking.

Key Talking Points:

What are the basics of the proposed rule (1:56)

Breaking down Scope 1, Scope 2 and Scope 3 emissions (2:38)

The SEC departs a bit from "materiality" (3:23)

Key nuggets of the proposed rule (4:52)

Important things companies should be doing NOW to prepare (6:20)

The challenge of reporting physical climate risk (8:20)

Data, data and more data (10:11)

The proposal is about more than just greenhouse gas emissions (12:08)

A closer look at Scope 3 (13:29)

The role shareholders might play in shaping the future 'materiality' (20:00)

Will this rule cause companies to shy away from setting Scope 3 goals? (20:48)

Navigating a new form of 'vendor risk' (22:55)

Why planning ahead for this reporting matters (26:09)

Will this rule change the makeup of individual boards? (30:01)

More resources from Vinson & Elkins

Proposed SEC Climate Disclosures: What’s happening and what are the implications for companies?

The SEC’s Climate-Disclosures Proposed Rule – Eight Key Takeaways

More resources from PwC

SEC Climate Risk Disclosures: What it means for companies and what business leaders should do next

The SEC wants me to disclose what? The SEC’s climate disclosure proposal

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(Note: This transcript was created using artificial intelligence. It has not been edited verbatim.)

Sean McMahon  00:13

Hello, everyone and welcome to another episode of The Modern Money Smart pod. I'm your host Sean McMahon, and today, we're gonna be taking a look at the Securities and Exchange Commission's proposed rule on climate disclosure. The SEC recently extended the comment period for this rule, so I invited Jamie Gamble, a managing director at PwC to join me on the show. Jamie has spent years helping clients build strong governance around ESG. So he's here to share his insights. I'd also like to welcome back to the show Maggie Peloso. Maggie, who is a partner at Vinson and Elkins, joined us last November ahead of Cop 26 to paint the global picture on ESG investing and climate disclosure. Now that the SEC has weighed in with its proposed expectations, she's back to sort out all the details. 

While this rule is not yet been finalized, the proposed language gives us the broad strokes of what to expect. Jamie and Maggie are here to talk about what's likely to be included in the rule. And what companies should be doing now. Yes, right now to prepare for its implementation. 

One quick note before we kick off the episode, regular listeners might notice the absence of my co-host and partner in crime, Colin Hogan. Colin got married recently and he's off enjoying his honeymoon. But don't worry, he'll be back soon. For now, let's get rolling with today's conversation. 

Hello, everyone, and thank you for joining me for this episode. The topic today is going to be the SEC proposed climate disclosure rule. I got a couple of great guests joining us today Jamie Gamble is from PwC and Maggie Pelosi is from Vinson and Elkins. How're you all doing today?

Maggie Peloso  01:52

Great. Thanks for having us.

Jamie Gamble  01:54

Yeah, Sean, thanks for having us. I'm doing well, too.

Sean McMahon  01:56

You know, let's just kind of take it from the top, the SEC, you know, issued its proposed rule, you know, what are some of the basics you can share with our listeners about that? Jamie, why don't you kick us off?

Jamie Gamble  02:05

Sure. The first thing I'd say is that 600 pages long. So whatever list we're going to give us necessarily a summary list. And it's a little limited. But I'd say key things are there's companies are going to be required if the proposal goes through as written to to report climate related physical and transition risks, and how they will affect the company's business strategy and Outlook, they'll also be required to disclose how they do their governance and risk management processes for climate related strategy. And then a big one for everybody that they're looking at is there'll be required now to disclose scope one and scope two greenhouse gas emissions. And if it's material scope three, and I'm going to stop there, because I think Maggie's better at talking about scope one, two, and three than I am probably.

Maggie Peloso  02:52

Well, thanks for that great setup, Jamie, I will start with the emissions point. So scope, one, emissions are the emissions that are the direct emissions of a company scope. Two are the emissions that come from energy usage. So you can sue electrons, we're all doing that right now and being on our computers and recording this podcast, and then scope three emissions or emissions from elsewhere in your value chain. So I think one of the big things to add to what Jamie has already told us about the overview of the rule, and this is true of emissions, it's true of many other things in the rule is that the FCC here has departed a bit from its traditional conceptions of materiality. Generally, under the securities laws, companies have to disclose information that is material, meaning that it would be important to a reasonable investor and making a decision in how to invest or how to vote. Here, there's a bunch of things that the commission has decided are simply quote unquote, decision useful, and therefore they're going to require their disclosure because they think it's in the public interest. So I think beyond the specific requirements of this rule, one of the things that's important is the SEC is trying to stake out some ground to say, look, we think climate is so important, and perhaps you haven't been getting the materiality, judgment correct under our 2010 guidance, that we're going to take that discretion away from you, and at least some places and say, this is just stuff you've got to disclose.

Jamie Gamble  04:09

And I would say, Sean, one more quick thing is that the scope three is still within a materiality threshold. But it's a complicated threshold that maybe maybe later we'll get into talking about, but I wanted to point out that what what Megan just talked about is a lot of folks who really want to get in the weeds on this coming out of regulation s k, which is one part of the securities regulations are all sorts of shifts to Regulation SX, which is the stuff that actually connects to the financial statements directly. And so the rules also require some specific disclosure in the financial statements themselves in the footnotes to the financial statements, which obviously is something that is, you know, of great interest to public companies.

Sean McMahon  04:49

Yeah, thanks for that, Jamie. I do want to do a little deeper dive on scope three a little later in this conversation. But for now, kind of just taking a broad look at like you said the 600 pages of this this proposed rule um, What things jumped out at you as the most important or most difficult or controversial? What are what are the kind of the key headline stuff that really caught your eye?

Maggie Peloso  05:08

Sure. So I think that one of the things that's really important here is that the SEC has based their disclosure regime on the task force for climate related financial disclosures with Shawn, you and I have talked about before in an earlier episode. But they've assumed that companies are much better at tcfd than they actually are. Right. So I think that in many ways, compliance with this rule, if it's finalized, as proposed is going to be a bit harder than the commission is anticipating. And I think they're getting much more granular than we're used to seeing the commission being so for example, there are required disclosures around how boards and management are overseeing climate risk. And on the board side, they're saying, hey, we want to know who on your board has climate expertise, we want to know how your board looks at climate, we want to know how they evaluate it. Right. And that's a really important paradigm shift from the way that we have normally seen companies report on how their boards are managing risks.

Jamie Gamble  06:04

And I agree with with with all that, I mean, I would say from from my own perspective, the word important is a little bit of a tough word in this context, because if stuff is actually included in the final rule, it's required to be disclosed. And therefore it's important because you're going to have to disclose it. I think one of the things that's helpful though, in sort of thinking through the relative focus on various issues is what are some things you can do to start preparing to get ready for this thing, assuming that it goes into force, and I think a couple of things, one has to start early. You know, right now, for at least some filers, they're going to be obligated, they would be obligated to report for the 2023 fiscal year. And that means historical data, which will be required to be in it will have to be historical data, it actually covers right now. And so you really need to start early. The second is you need to think across functionally, teams from the operations part of the business, the legal part of the business, the finance, part of the business, the risk management part of the business are all going to have to coordinate to do this, in ways and at levels that at least for reporting purposes, they really have not in the past, I would say connect with consultants and specialists early, everybody's going to be doing this at once, there's going to be a lot of demand for people who have experience in this area. And so it's really important to do. And then this is one that I particularly talk to people a lot about, which is financial statements have to be signed off on by a bunch of people. And that's the CFO, the CEO, the board of directors and Audit Committee have to approve their filings. The way most companies work this now in the financial space, is that they have upstream certification. So the business unit, see a CFO will sign a certification that goes up a chain up a chain and up a chain and lands at the company CFO. Well, they don't have those systems set up for for climate disclosures, but many, you're going to want to have them set up. And so again, that's something you want to start thinking about now. Because as you start thinking about your chains of who's going to have to certify information up the chain. So the CEO, the CFO, the board can get comfortable with that information, you're going to find gaps, simply because you have people having to talk across to each other in ways they haven't done before. And you want to identify the gaps early because you have to fill them before it's time to file.

Sean McMahon  08:20

All right, I want to circle back real quick, Maggie, you mentioned that, you know, the SEC thinks companies are better at reporting than they really are. Right. So, you know, are there any aspects of again, a 600 page rule that are kind of sneaking under the radar? I mean, I take your point, Jamie, that everything's important if it's in the final rule, it's important. But let's be real, like some of these things grabbed way more attention than others. So what are some of the little nuggets in there that the SEC or even you know, market participants might not think are a big deal now that might catch them in a blindside them down the road.

Maggie Peloso  08:51

So I think the first thing I would point you in that regard is the way that the rule is dealing with physical climate risks. Physical climate risks have generally been really under reported by companies as compared to transition risks. We see a lot of companies who have done work in the climate scenario analysis space to think about, well, gosh, if energy prices shift dramatically, or demand for my product shifts dramatically what's going to happen there, but the commission is looking for a lot of really granular disclosure. That is, frankly, beyond the data that many companies will have right on the physical risk side, there are some requirements that basically say, Well, gosh, if you think you're subject to flood risk, or wildfire risk, or water stress, we want to know down to the zip code level where your assets are located that you think are subject to some of these stressors. And that's going to be extraordinarily challenging simply because of the lack of data. And I think the other thing that will be hard there for companies is that it's not going to feel very satisfactory in many companies to just sort of say, hey, we found a risk, right? They're going to want to be able to say, here's what we're doing about it. Right. And so there is an awful lot of homework that I think needs to be done in terms of one making sure we have have data of a quality that companies are comfortable relying on. And then to thinking about what does that data really mean? And what do you want to signal to the market about what you're going to do with those risks you've identified?

Sean McMahon  10:12

Yeah, data I saw, I think just just the other day, the International sustainability standards board is kind of launching another initiative aimed at standardizing all this data. So So Do either of you have any insight on like, how big of a challenge that's going to be for some of these companies? I mean, I'm guessing it's ginormous, by the look on your face, Maggie. But But yeah, I mean, let's get real. I mean, Jamie, were talking about some of the things that companies can do to kind of get started. And he talked about the signing process up and down for the disclosure. But what about the actual data gathering?

Jamie Gamble  10:39

There are two aspects of it. One is data gathering. And the other is sort of data processing, handling and analysis. And I think on the on the processing, handling and analysis side, it's a huge job. But it's a huge job that people know how to do I mean, companies already handling enormous quantities of data that they have to pull together the, the critical piece of it will be how do you expand what you're doing now to cover new topics? And how do you make sure that your data gathering systems connect in to all the people who have the the underlying data on climate issues, who are in many cases can be different people than had the financial data? I mean, I actually would go back to the point I made at the beginning, I think, for company to step back and look at the chain of people who have to certify, it's a really good way of starting to think how you're going to handle and gather the data. Because one of the gaps I mentioned, as I mentioned, you'll identify gaps, one of the gaps you'll find is, you may be asking somebody to certify something about how much about the greenhouse gas emissions for a particular operation or plant who's never had to sign a certification that goes upstream to the CFO for a public filing before, he's gonna say, Well, wait a minute, if you want me to do that, I'm going to need some more resources, I'm going to need some more support to make sure I can get the level of comfort and that number that I need, in order to give you the comfort that you need. So I think it's it's really, it's a process, you're going to have to go through the process, people can handle the data that they'll that that people will work out. It's really a thinking process, I think more than it is worrying about volume

Maggie Peloso  12:09

search on the one thing I would add to that is that, I want to make sure that we don't suggest to your listeners that this is just about greenhouse gas emission data, the rule hasn't a proposed item that essentially says, Hey, gosh, if you've made any commitments at all whatsoever to people about climate stuff, which they then defined very broadly to include commitments around water, Habitat Conservation, but it's kind of the whole ESG sneaks into the back of this rule, then you've got to start reporting every year on what your progress is against those. And so I think you will see a lot from public companies who are going to comment on the proposed rule around some of the challenges in getting good GHG data. But that I think, is just the tip of the iceberg, right? There's the physical risk data I've already mentioned. But then on top of that, you know, if you've got a water commitment, if you've got habitat, conservation commitments, any of these kinds of things, you're going to have to be able to measure them. And I do think that one of the interesting things we may see come out of that is companies who have made commitments because their shareholders asked them to, or because it sounded good and aspirational, who are maybe not quite ready to think about how they're going to measure those and what that really means.

Jamie Gamble  13:25

I think that's a really, really good point, a really important one for people to focus on.

Sean McMahon  13:29

Yeah, I kind of want to take this as a perfect segue to scope three, and what the rule kind of asks for from scope three. So there seems to me to be a little bit of a gray area, if you will, for when it comes to materiality, you know, and who determines it? The company the SEC, so So Maggie, can you walk us through what the rules proposed rule has on that and how we're going to see our way through that that fog?

Maggie Peloso  13:51

Absolutely. So the scope three emissions reporting requirement has two prongs to it. The first is companies will need to disclose scope, three emissions if they've made a commitment, right. So this is basically, if you've said you're going to be net zero, the Commission now says you got to tell people how you're going to get there. Right. And then the second is that scope three emissions need to be included, quote, unquote, if material. I think it's important here, and Damian, I've mentioned this a little bit before, it's not entirely clear if this is old school, you know, it changes your voting decisions materiality, the Commission gives a couple of specific examples in the proposing release of sectors for which they say it might be material, what they say is they say, Well, gosh, you know, for auto manufacturers, we think scope three emissions are material because there's a lot more emissions that come from all of us owning cars and putting gas in them and driving them around. Then there are from making the car. And they also say that they think that scope three emissions are material for the manufacturers of oil and gas products. So essentially, for upstream oil and gas. Where it gets kind of harder to figure out what they're really wanting. Is that But they say, You know what, we're not going to establish a quantitative threshold for what percentage of your emissions need to be in scope three, for scope three to be material. Maybe we could say something like 40%. But it might be something different than that. And there's just a lot of very loose language around it. And so I think that one of the risks there is that if the rules finalized in its current form, it's going to be really hard for a lot of companies to know, whether they really, quote unquote, should be reporting their scope, three emissions as material or not. And I think that one of the real challenges there may well be for companies that have not yet taken a hard look at their scope three emissions that are maybe not in some of these sectors that feel obvious to the SEC, how do they think about what the various buckets of scope three emissions, both upstream of their activity and downstream of their activities are and even begin to get their arms around? Well, what do we think about that? And how, how does it interact with any determination we need to make around materiality?

Sean McMahon  16:03

And just real quick, for our listeners, scope three, we're talking about the greenhouse gas emissions created by your end users of your products. Right. So Jamie, what kind of questions are you getting from from clients? Or, you know, what kind of advice are you sharing on how companies can kind of manage this whole prism of materiality and scope three?

Jamie Gamble  16:21

materiality is always a complicated question. And it's always really fact dependent. And so to try to figure it out, sort of the discussion of materiality and total would be beyond way beyond the time we have here. I think, you know, Maggie really pointed to the key things, which is one, it's not very well defined, there's but what I would say is this. The Commission uses a lot of the magic words for materiality that lawyers use in the context of traditional, what I'll call securities fraud type, materiality. So rule 10, B, five, which, you know, they actually, quote, the famous, you know, total mix of information so that the language this is actually a quote, it says, consistent with the concept of materiality and the securities laws, this determination would ultimately need to take into account the total mix of information available to investors, including an assessment of qualitative factors. And that's, you know, as Maggie points out, that's tough on companies, not a lot of guidance has been given by the SEC. So it's hard to advise people outside of the very specific context of their individual businesses, unfortunately, but it's this is something that will evolve over time. There's no other way to really I think, answer the question.

Sean McMahon  17:36

So when there's a disagreement between a company and the SEC on whether something's material, not how is that going to be settled? How they are determined? You know, yes, you got to include it, or the company says, No, we don't I mean, some kind of sec. Panel is going to be handling that or what does that look like?

Maggie Peloso  17:52

So I think it's going to take several years after the rule is finalized for that to shake out. And I think the best indication we have right now is the sample comment letter in the series of comment letters that came out from the FCC, in response to their review of current disclosures in connection with the 2010 disclosure guidance. And there, we did see an awful lot of comments where the Commission said, Hey, we're really curious about why you don't think this particular climate risk or climate risk writ large is material, tell us more about your thinking. And I suspect that we will see something similar here. If the scope three provisions are finalized, as proposed, where essentially, companies will sort of go out into the world, and they will try to make their own determinations and figure out how to do that. And then the SEC will review them. And some number of companies will get comments where they'll say, gosh, you know, we really think maybe your scope three emissions as a whole are material or this category of your scope. Three emissions were material, what do you think about that? And then companies will either choose to say to the SEC, no, we don't think so. Or they will revise their disclosures accordingly. You know, to my mind, one of the really interesting things to watch, if this becomes the rule will be how that process plays out over time, because you could kind of see this ecosystem developing where companies are able to make determinations about some categories of scope three more readily than others. And essentially, that the universe of things we're looking at, and the quality of the data will expand over time, and that this will be an evolving issue for quite some time.

Jamie Gamble  19:31

And I would say that there's two other points in terms of the definition of how materiality will will come into clearer focus, both of which are very early. And so this is no sense of me giving a gut feeling more than anything that can yet come out of experience. One of them is securities litigation, which obviously can't start until the rules actually finalized. But securities litigation tends to define the materiality thresholds and in the clearest way, because it's it actually defines specific thresholds where liability will attach But the other one that I think we'll probably see, though I can't speak to this as of yet, is, you know, most large companies have spent the last several years talking to the big asset managers who own a lot of their stock about climate related issues. And so some of the way many companies are likely to start thinking about this is through their discussions with their major holders, they will start to figure out what their major holders really want to see. And they're unlikely to make disclosures that don't satisfy the big asset managers. And that may start to help clarify what constitutes material and may help them with the in responding to sec comments as well. Because if they can say, hey, my major holders are telling me this is what's important. The SEC is remit, generally speaking is what information is important to investors.

Sean McMahon  20:48

Okay, and now now, the way I understand the proposed rule is that, you know, scope three, when it comes to that if companies include that in their stated goals, then the SEC is going to hold them to that. Does this rule kind of mean, our company's going to suddenly be like, guess what, we're going to not include it in our proposed goals? Because if we do that, we're just inviting a ton more oversight. So we're gonna start to see some backpedaling going on there.

Maggie Peloso  21:12

So should I think that question is more broadly, applicable to net zero goals writ large, not just net zero goals, including scope three, there are a number of things in the rules and net zero goals is one of them, where they fall into what I would call disclose it, if you have it. So if you've done certain things to look at your own climate risks, or mitigate them, the Commission saying you got to tell people more about it. And I definitely got a number of phone calls when the rule first came out of what can I uncommit? To my commitment, or can I change my mind about what I'm doing? And I think the practical reality is the commission has not suggested probably, because legally, it cannot require companies to make those sorts of commitments. But I do think that Jamie's point about the big shareholders is an important one here, I think, you know, what we have sort of been seeing generally with our clients is that Sure, you could change your mind about what your commitment is. But that might be really hard thing to convince your shareholders was an okay thing to do. And so, you know, I think one of the things that's really interesting in this rule is that the commission has not only sort of said, we're kind of getting at greenwashing, right, by saying, you can't just tell people things that sound good, if you say them, you're going to have to execute on them. But they've also, in many ways, created a bit of a roadmap for climate activist shareholders for going forward seasons, because they've said, here's a whole bunch of things, including, you know, Net Zero targets that if companies do them, our rules are then going to require disclosure around. And so you know, I think it contributes to some of this push pull between regulators and investors and issuers about how this is all going to play out over time.

Sean McMahon  22:56

Okay, now, Jimmy, I got a question for you real quick. When I think of scope three, and the data company is going to use to measure that. I feel like there's just a giant Lane opening up for vendor risk. I mean, if you're a company that's relying on data about, you know, you say, you know, automobiles or whatever, and that the data company, you you've outsourced that to, I presume, and you purchase that data, if they have mistakes in that data is that what kind of risk does that present for companies that are, you know, filing their public reports based on data that ends up being erroneous?

Jamie Gamble  23:28

So it's a really interesting question. And it comes both with respect to vendors themselves, but also other people in your supply chain. And so I think this is one of the questions we're hearing people ask the most. And Maggie, I'd be interested to know, if you're getting the same thing is, is if I'm, if I've got to get on the scope, three Road, both in terms of determining whether scope three is material to me or not, because I have to know something to know that in the first place. And then if I have to report it, I'm going to be relying on a lot of other people. And I don't know how I get comfortable, because ultimately, if it's in my financials, it's in my financials now. There's a safe harbor for scope three, at least, there is one for now, how long it will last? No one knows. But there is a safe harbor for scope three and stuff that's going to apply early on, that will make it less fraught as just as a litigation matter. So that's helpful. But I think you know, Shawn, you've pointed to a really good question that I don't think I have a really good answer to just yet. The answer is yes, it will be hard to figure out how to deal with that it will pose some risks to companies that are relying on that information to report on it. And how companies will manage holding their suppliers and data providers sufficiently responsible to get comfortable with it is something I think people are still working on.

Maggie Peloso  24:47

Yeah, I think that's absolutely right. I think we are obviously in very early days because many companies are trying to figure out if and how they want to comment on this rule and then simultaneously starting to look ahead To what what I need to do to prepare for compliance. And this scope three Safe Harbor comes up a lot, because essentially what the safe harbor says is, if you are in good faith relying on the data from someone else, then then you're okay. But the rule proposal does not define what good faith is. So it's raising a lot of really interesting questions around. Does that mean I need to diligence the greenhouse gas emission inventory practices of the people who are giving me data? Would it be okay, if I relied on data that those entities report to other governmental programs like the EPA is greenhouse gas reporting program? Would that be good enough? Do I need to do things like amend my contracts with all of my major suppliers to require them to report greenhouse gas emissions to me? And if I do that, do I want a contractual remedy if that's wrong, and that remedy would not be a shield to securities litigation liability, but could perhaps provide some recourse for a company if their supplier has reported erroneous information? And I think there's just a lot of complexity there that still needs to be worked through.

Sean McMahon  26:10

So Jamie, what are the areas of this proposed rule, you know, have your attention and you think company is gonna have to be on the lookout? So I think one

Jamie Gamble  26:17

of the big planning challenges and reporting challenges for companies is going to be that, from my personal point of view, what the SEC is doing here and the climate rules with respect to governance, and they've done this in the cybersecurity rules as well is new, it's not something the SEC has done before, which is to say, describe to us the governance process through which you're going in order to provide proper oversight of these risks. And that I think will, it will again, require some a lot of cooperation across various functions and various different groups of people to get that right. And I think we'll we will certainly get a range of the way people report about this, some will do it in more minimal ways. And some will do it in more expansive ways. And how the market responds to that, I think will be an important point. But I think that governance reporting is again, one of these things I would expect expressed to people get on early, because it's not going to be as it's not easy, I don't think and you're going to have to remember, you're going to be now asking the Board to certify the filing of financial statements that don't just describe outcomes anymore. But to actually describe processes and in fact, describe the board's processes. This is not necessarily a bad thing, it's going to be more time talking through how the process works, to make sure you're really comfortable with it, and when you write the narrative. And this is why I think people need to write it early. When you write the narrative, you often find that there are gaps in what you're actually doing that you would like to be different in the narrative. And so you have to go fill the gaps and make them true, so that you can then write the narrative that feels to you like the right narrative for your company.

Sean McMahon  27:54

So you're saying that this couldn't have been a way to help companies identify their own inefficiencies or things that they thought they were better at? And you'd actually use the SEC to improve their own operations.

Jamie Gamble  28:05

I'd like to think that Sure, there's always you know, there's room for continuous improvement. Always not, you know, I want to be careful about words like inefficiencies or like that, because for different companies, this is going to mean different things. But I think that, yes, I think the process of having to publicly state this is how we do our oversight, and do our governance is an opportunity to say, well, is the story we're telling about what we're doing the true story, we're telling you about what we're doing? Is this right? Is this is this something we're really proud of? Is this the best we can be? And if it's going to be out there really publicly, we want to be the best we can be.

Sean McMahon  28:37

And Maggie, how about you any other overarching thoughts about this proposal?

Maggie Peloso  28:41

So I think I'd like to build on Jamie's point about starting early. I, you know, there's a lot in here that if it's finalized, is is new and different. And, you know, not only will require new processes and getting data together, but is going to require some level of skill building internally, right. And so at one extreme of that, we are starting to hear from some clients who are saying, well, gosh, if I might have to file for the first time in 2024, for my 2023 financials, I kind of need to do a practice this year. And I need to go into, you know, my last quarter of the year board meeting and say, Hey, board, if we had to do this this year, here's what I think it looks like. And let's really start to have a conversation about what we do and don't know and what kind of oversight you want to be able to provide on this because I think there's just a lot of learning to be done and that is not special to the companies right? If you look at the range of professional service providers out there, they are all looking to upskill very quickly and to dramatically expand the number of professionals they have available to provide services in this area because it's it's going to be a brave new world. There's a lot of gray area where companies are gonna have to work hard and exercise judgment and the the number of service providers that are out there to help them is not likely to meet the demand.

Sean McMahon  30:01

Do you think this is going to change the makeup of individual boards? I mean, I know we've been talking about ESG for a few years now. So a lot of that expertise is already kind of making its way to the board level, but you think this is just going to put that on steroids. And like you're gonna have, you know, more board seats, almost dedicated to satisfying, you know, these these climate disclosure demands.

Maggie Peloso  30:20

So, you know, I think it's an interesting question, Jamie hint is the fact that this is not just in the climate rules. We see this in the SEC cyber rules to some questions of TELUS who has expertise. I think that ultimately, we're going to see more education of existing board members, I think you will see some companies where climate risks are particularly salient where maybe you will see some more climate board members, but boards have to be able to do lots of other things to help govern a company effectively. And so I do think that a risk here is that companies overreact and you do you see this, the creation of specialists, directors, and frankly, there are not enough people out there who meet the kind of vague outlines of climate expertise that the Commission seems to suggest in the proposing release to put one of them on the board of every public company. And and even those people who do sort of fit those criteria probably aren't going to have expertise in running companies at a C suite level in auditing financials in compensation and benefits, the kinds of other things that boards and board committees have to do. And so I think this will be an area where you will see a big trend towards educating boards and making them more capable of overseeing this risk.

Sean McMahon  31:36

All right, listen, Jamie. Maggie, thank you very much for your time. I really appreciate your insights. This is wonderful. 

Maggie Peloso

Thanks Sean

Jamie Gamble


Sean McMahon

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