Spotlight

SEC Climate Risk
Disclosure Proposals.

June 30, 2022

SEC Climate Risk Disclosure Proposals.

In March 2022, the US Securities and Exchange Commission (SEC) proposed a rule to enhance and standardize climate-related disclosure for investors. If implemented without revisions, the rule would require public issuers to disclose in a standardized way:

  • greenhouse-gas (GHG) emissions
  • material climate risks
  • emissions reduction targets and transition plans.

Something Old, Something New

The most direct effect on public real estate companies, if the rule is implemented, is that they will have to report these items going forward. The largest REITs in the US already disclose a good portion of these new proposals. According to National Association of Real Estate Investment Trusts (NAREIT), 78 of the largest 100 REITs disclose their carbon emissions while 57 of the largest 100 disclose their climate risks along TCFD guidelines. The firms that aren’t reporting already have their work cut out for them.

It is no easy task to measure the carbon footprint of building. Many buildings have multiple tenants, and so there isn’t just one gas or electric bill, but perhaps dozens. Collecting, collating, and reporting that in a cohesive fashion can be complex but many service providers exist to help. Still, firms beginning this journey will need to develop systems and processes, and staff up.

Similarly, detailing the physical risks a single building faces due to flooding, sea level rise, heat stress, drought, storms, wildfire, etc. is a large undertaking. Many REITs own dozens even hundreds of buildings. Again, service providers in the form of climate risk consultants have sprung up to assist. Many owners have done this work already, as it is their assets at risk. But fewer have disclosed the extent of the risks publicly, for fear of a valuation discount.

Another powerful effect of the regulation arises from tenant demand. Many tenants of office buildings, warehouses, data centers, and other facilities, are public companies themselves. They will need to do the same reporting. Many will also want to be reducing their emissions, lowering their climate risk, and setting climate goals. They’ll likely prefer to lease space from REITs that can assist them in these efforts.

The Effects on Real Estate

For some investors and companies, these proposed rules will feel like old hat. Over 12,000 companies around the world already report some of these items to the CDP, a non-profit leader of environmental disclosures. UK companies have been required to report their GHG emissions since 2013. Many a firm, and investor, is familiar with the Task Force for Climate Related Financial Disclosures, a framework for climate risk reporting.

For at least 100 REITs, those that the Vert Global Sustainable Real Estate Fund invests in, these recommendations will sound quite familiar. Our annual engagement campaign, whereby we write to every company in the portfolio, featured the following disclosure requests over the years:

2018: Greenhouse-Gas (GHG) Emissions reporting
2019: Climate Resilience and the Task Force for Climate Related Financial Disclosures (TCFD)
2020: Net Zero Pathways and Emissions Reduction Targets

No, we didn’t write the SEC’s proposed disclosure rules ourselves, though it might read like it. We did submit extensive comments to their draft proposals in 2021, but then so did over 600 other investors and issuing companies. If these disclosure rules are new to you, they might seem oddly specific in the way they line up. But this is no coincidence. Emissions reporting, climate risks and carbon reduction targets are the basic building blocks of climate disclosure. Pizza is created differently around the world, but dough, sauce, and cheese tend to feature prominently everywhere.

In fact, the popularity of the SEC’s climate rules, as evidenced by over $130 trillion of assets in favor of them, is partly down to their adherence to developed protocols and standards. 70% of respondents to the SEC called for alignment with the TCFD and 65% called for standardized GHG emissions reporting like that of the CDP.

Competitive Advantage

For many firms the buildings they occupy make up a significant part of their carbon footprint. Facilities that remain operational through thick and thin is critical to their business.
Imagine you are a public company and you are considering leasing new office space. Given these new disclosure requirements, you might have some additional questions for the landlords, like:

  • What are my emissions likely to be?
  • How can I reduce them (and can you help me do so)?
  • What physical risks from climate change is the building exposed to?
  • How will these risks affect my business? Will there be downtime, and if so, how much?
  • What are the likely impacts, and costs, of these risks? And what can be done to mitigate them?


Would you be more likely to lease space from a REIT like Boston Properties or Kilroy Realty who have been answering these questions for years already? Or from a firm who says they are finding out how to make these disclosures?

Investor Take-Away

Some companies have been anticipating climate change, have been transparent with investors, and have been looking for solutions to both physical and transition climate risks. Other companies have either wished these issues away, or just not addressed them yet. Those on the front foot, won’t be surprised by these new proposed rules. Rather, they’ve been awaiting them, and have answers for the regulator and their investors. Not only that, they are allies to their tenants, helping them set and achieve their own climate goals.

This is one of the benefits of investing in ESG leaders. In situations where regulations start to address practices that leading businesses are already voluntarily doing (which we only expect to become more frequent), these businesses are already ahead of the curve.

Please refer to the Prospectus for full risk disclosures. All data as of June 30, 2022 and subject to change daily.

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