Published: March 31, 2022

Update 6/17/22 - Read the comment letter submitted to the SEC by particpants of the the Investors & Indigenous Peoples Working Group. “Failure to include relevant information on Indigenous Peoples would negatively impact investors and issuers because climate disclosures made without a contemporaneous assessment of Indigenous rights risk fail to provide investors with the full scope and context needed for evaluating and comparing a registrant’s climate-related disclosures,” investors wrote.

The proposed rule on corporate disclosure of climate-related risks, released March 21 by the U.S. Securities and Exchange Commission (SEC), is a critical step to forward the SEC’s promised focus on environmental, social, and governance (ESG) frameworks. The new rule, while narrow, shows strong movement towards standardizing disclosures of these risks and the risks that a broad transition to a low-energy economy poses to a corporation's overall business strategy and outlook in the short, medium, and long term. 

Disclosure requirements encompass climate-related information, such as:

  • Mandatory disclosure of the oversight and governance of climate-related risk by a company’s board or management;

  • Mandatory disclosure of both climate-related and transition related risk analyses, which are largely based on guidelines developed by the Task Force on Climate-Related Risk Disclosure (TCFD), including line-item reporting which will be included on audited financial statements;

  • Mandatory disclosure of greenhouse gas (GHG) emissions that occur from sources owned or controlled by the company (Scope 1), and those indirectly resulting from the generation of purchased or acquired energy consumed by operations owned or controlled by the company (Scope 2); 

  • Mandatory disclosure of a company's use of carbon offsets and renewable energy certificates (RECs), which are purchased or acquired units of renewable energy used by a company to offset its emissions which are the subject of Scope 1 and 2 disclosures;

  • Disclosure, only if (I) deemed material by the company or (II) if the company has independently made an emissions-reduction commitment, of indirect GHG emissions which are not otherwise produced or controlled by the company but are produced at various stages both up and down the stream of the company’s value chain  (Scope 3).

Investors indeed need more information about how climate change creates operational risks in the short and long-term, and the proposed rule will require companies to disclose these risks to investors. Of particular concern, however, the rule does not take into account the impacts of climate change on Indigenous Peoples and other impacted communities. 

For example, the proposed Scope 3 emissions disclosures do not require the disclosure of climate-related harms faced by Indigenous Peoples at the material acquisition phase in a corporation’s value chain. It is at this point of local sourcing and material acquisition where the nexus of operational impacts and climate-related impacts have the most direct and longest lasting impact on the local community. For example, when a cistern breaks due to melting permafrost, as occurred in the Taimyr peninsula in 2020 causing an oil spill that contaminated rivers used for fishing, the impact is felt first by the local and Indigenous communities who then do not have access to food for subsistence or commercial purposes. These impacts directly implicate the ESG commitments made by companies regarding climate and human rights. Therefore, the SEC’s failure to require such a disclosure means that the goal of this proposed rule, which is to provide investors with a clearer picture of the climate-related risks affecting a corporation in the modern market, cannot be met.

The proposed rule draws a straight line from the ‘E’ in ESG, but completely omits the ‘I’, or Indigenous, which threads throughout ESG considerations. As discussed by the Investors & Indigenous Peoples Working Group in October 2021, requiring disclosures around climate-related impacts to Indigenous Peoples puts companies in a better position to manage, mitigate, and assess those impacts against their operations. It would also provide valuable data to the companies about how climate impacts are affecting integral geographies and local economies in their operational zone. 

Understanding and disclosing impacts to Indigenous Peoples must be a due diligence consideration for companies. This is as true regarding obtaining Indigenous Peoples’ free, prior, and informed consent (FPIC) where development has impacts as it is to understanding climate-related impacts on Indigenous lands, territories, and resources. 

The limited scope of this particular rule underscores the need for further emphasis by the SEC on the complete landscape of ESG to fully identify, assess, and mitigate risks related to Indigenous rights. Indigenous Peoples must be considered across all components of ESG disclosures. 

In the coming weeks First Peoples Worldwide will continue to study the proposed rule in depth and provide analysis on the ways in which it impacts Indigenous Peoples, and how climate-related impacts of business on Indigenous Peoples should be taken into consideration. We will be providing further input as we convene investors to discuss the impacts of the ruling and its intersection with Indigenous Peoples.