Published June 22, 2022
Listen to our fifteenth episode of Urban Green Live! Hosted by Urban Green Council CEO John Mandyck, this interview series features international industry experts to answer your questions about a low carbon future.
On June 22, 2022, we switched things up! John was interviewed by guest host Ellen Honigstock, Urban Green Council’s Director of Education. They discussed a proposed federal rule that would require all publicly traded companies to disclose climate risks and carbon emissions.
Key Takeaways
The SEC’s proposal involves requiring publicly traded companies to disclose detailed information about their greenhouse gas emissions and climate-related risks.
-> By 2030, knowing a company’s carbon emissions will be common knowledge.
-> Companies would need to disclose the risks they face related to climate change, including physical risks (like extreme weather events) and transition risks (like regulatory changes and shifts in market preferences).
This proposal aims to standardize the disclosure of Scope 1, 2, and 3 emissions, making it easier for investors to understand a company’s climate risks and impacts.
-> Scope 1 Emissions: Direct emissions from sources owned or controlled by the company, such as fossil fuels burned on-site.
-> Scope 2 Emissions: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the company.
-> Scope 3 Emissions: All other indirect emissions not covered in Scope 2.
Speakers
John Mandyck
Chief Executive Officer
Ellen Honigstock
Senior Director, Education, RA, Leed AP, GPRO: CM
Ellen oversees the development of Urban Green’s Public Programs. She is also responsible for developing the curriculum for Urban Green’s signature programs, including GPRO and Crushing the Code. Ellen has 28 years of experience as an architect and volunteered for Urban Green for several years before joining the staff, where she served as the first Residential Green Building Advocate for Urban Green Council, working to increase green building and LEED for Homes certification in the New York residential marketplace, and as a committee chair of the Green Codes Task Force. Ellen is a co-founder of Solarize Brooklyn and Sustainable Kensington Windsor Terrace.
Q&A
Ellen Honigstock: Have any banks indicated that they’re on board for this kind of emissions disclosure?
John Mandyck: I haven’t seen it yet. I haven’t been combing to find out either. I know some are very concerned about how they measure this. Disclosing scope three is hard, right? But just because it’s hard doesn’t mean we shouldn’t do it. Sticking our head in the sand with climate change has gotten us to where we are right now, so I think this level of transparency is what’s really needed to change the marketplace. It’s crazy to me that we don’t know what the carbon emissions of companies are.
Ellen Honigstock: How do you think the SEC will handle the double counting that will occur when both an industry and the bank that lent them money report the same emissions?
John Mandyck: Yeah, it’s a great question. There is a lot of double counting because if you think about it, just by definition, everybody’s scope three is somebody’s scope one. Surprisingly, that doesn’t matter because risk is risk.
So remember, this is about understanding risk, investment risk and how you measure a company. This isn’t about a standard to get us to meet some climate change target.
This would be a requirement or a proposal that would allow us to understand what is the carbon profile of a company, and is that a company I want to invest in? Or is that a bank I want to give my money to at night, knowing where my money is being used to finance? Is my money being used to finance oil drilling? Is my money being used to finance deforestation in the Amazon? Because let me just tell you, loans are made every day that lead to those consequences, using somebody’s money that they don’t know. I think corporate America is going to wake up to this.
Ellen Honigstock: Would you ever foresee global carbon emissions reports following this corporate greenhouse gas protocol? For example, countries accounting for outsourced manufacturing emissions?
John Mandyck: If the Paris Climate Accord is net zero, everything has to be. So if the global regulatory regime is a net zero regime, then a country that signs up for it is by definition signing up for a net zero regime, and if you’re a company in that country that’s signing up for a global net zero regime, you need to ladder up to it. We need to get uniformity in the way that we look at it.
I have to tell you that the net zero approach is taking hold outside of the United States, particularly in Europe. We’re kind of late to the party on what net zero means and I think we’re going to have to get there quickly if we’re going to make the Paris Climate Accord work. So yes, a country needs to account for those emissions too. Where and how the emissions happen is all part of how you think through signing up for net zero.
Ellen Honigstock: If this moves forward, do you have any speculation as to how the scope three reporting would be standardized and verified?
John Mandyck: I think we’ll see standards developed for it because we’re going to need it. Net zero is kind of where the green building movement was 30 years ago. I had the good fortune of being around as the green building movement started, and it’s not an exaggeration, but people were painting walls green and calling them green buildings. There was no way to tell what one building was versus another.
That’s why the LEED rating system was created, to help to define, measure, and certify what green buildings really are in this country and around the world. Now we have a common language, at least with that standard, on how to think through what a green building is. We didn’t have that with net zero yet until this SBTi standard came up because every company was approaching net zero in different ways. Some were disclosing scope one and two, but not three. Now we have the standard that’ll help us think through that.
Ellen Honigstock: Does the SBTi standards supersede other standards?
John Mandyck: There are many standards out there. Even Amazon’s trying to create their own standard. I would say the SBTi net zero standard is like the gold standard because it has the United Nations backing it. It has the world’s most trusted environmental groups behind it. For SBTi, you have to go through a verification process to be certified.
Ellen Honigstock: The SEC guidance also includes disclosing climate risks. What are climate risks, are they separate from carbon, and what can we learn from this type of disclosure?
John Mandyck: The risk reporting is literally just listing your risks. A risk could be that all of your factories are in low level areas in hurricane zones. Investors may wanna know that. Another risk could be that all of your supply chain is in a hurricane zone. That’s a risk.
There are standards to disclose risks, it’s called the TCFD, the Task Force on Climate-Related Financial Disclosures. Overtime I think there could be some standardization there, but where there can absolutely be standardization is how many emissions are your doing and how many emissions are my doing? That’s what scope one, two, and three is. I think that is another level of risk that’s disposable, that’s knowable, and that certainly can be standardized.
Ellen Honigstock: Do other countries already have regulations similar to this?
John Mandyck: It looks like Europe could finalize a regulation like this before us. In general, the European regulations are ahead of the U.S. as far as transparency. We’re starting to see more European governments require net zero standards. In Europe right now, if you are a publicly traded company, you are required to file a sustainability report every year. That’s a way to get at this transparency a little bit.
Ellen Honigstock: If mortgage lenders want to know the carbon emissions of real estate, would this mean that the average homeowner would have to disclose their greenhouse gasses to their bank for a home loan?
John Mandyck: I think it would be more at the time of property transaction for a homeowner. If a bank’s gonna give you a loan for a mortgage, they wanna know what the carbon profile is of that property at that point in time.
Ellen Honigstock: Do you think that this should be integrated into the current ESG framework or should emissions be considered on their own?
John Mandyck: I think the emissions should probably sit on top of the ESG framework.
Ellen Honigstock: Is there any indication as to whether the SEC will approve this rule and when will a decision be made?
John Mandyck: I think it’s their intention to make a decision this year, but the timing is up to them. The SEC is controlled by presidential appointment, so President Biden has his picks on the SEC right now. I think when you look at the politics of this, I think the SEC is going to finalize something that looks the way it looks now.
Ellen Honigstock: Do you see the social cost of carbon playing into the emissions and risk disclosure? And if so, how?
John Mandyck: I think this starts to help better quantify the social cost of carbon. The problem with the social cost of carbon right now is there are too many of them or they’re not enough. A lot of jurisdictions don’t have them at all. A lot of countries don’t have them at all. Then some countries have several of them. I think we need some better uniformity on how we arrive on what the social cost of carbon is. Once we do, then it’s just a mathematical formula; you just plug that against what the disclosed climate emissions are.
Ellen Honigstock: As new technologies are developed, are you worried about folks gaming the system somehow?
John Mandyck: Well that’s what the SEC is all about, to make sure people don’t game systems. I think the proposal is a reaction to the systems already being “gamed” a little bit. I use that term loosely, but in the sense that people are disclosing, but not uniformly. Not in an intentional way, it’s just like some companies disclose scope one, some disclose scope two, some do all three, some don’t.
Ellen Honigstock: In your opinion, is a carbon emission penalty or a carbon credit trading system necessary for this new ESG economy?
John Mandyck: I would do both. I think we’re going to need all sorts of different ways to lower carbon emissions. We take for granted in New York City that we have benchmarking. We understand the building emissions profile in New York, and that’s fantastic. Why shouldn’t we have that for every company? That’s what we’re talking about, is extending benchmarking to every publicly traded company.
Ellen Honigstock: In terms of ways for us to get better at valuing the health benefits of lower carbon, how do you think that would be calculated?
John Mandyck: I think you could get your way there by understanding what the carbon emission profile is to begin with. It’s a conversation we have to have because the health co-benefits of all of this are often left behind or not calculated. It has to start with some baseline data, so if you know what the carbon profile is, then you can understand what that means for health.
Ellen Honigstock: Do you see any potential unintended consequences from this rule? For example, disinvestment in certain areas or properties that might have a negative equity impact?
John Mandyck: Yeah, that’s a really good question. I think from a financial industry standpoint, it would incentivize loans for lower carbon assets, and it would disincentivize things still using carbon. So we would have to think through what the equity implications of that would be.
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