June 17, 2022
The Honorable Gary Gensler, Chair
Securities and Exchange Commission
100 F Street NE
Washington, D.C. 20549
Vanessa A. Countryman, Secretary
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090
Re: Comments of the Pennsylvania Farm Bureau on SEC’s Proposed Rule (Enhancement and Standardization of Climate-Related Disclosures for Investors) (File No. S7-10-22)
Dear Mr. Gensler and Ms. Countryman:
Pennsylvania Farm Bureau (PFB) is pleased to offer its comments on the rule proposed by the Securities and Exchange Commission (SEC or “the Commission”) on the enhancement and standardization of climate-related disclosures for investors (File No. S7-10-22).
PFB represents over 30,000 members engaged in all manner of agricultural activities, including the production and processing of crops; the production and processing of animals; the production and processing of forestry products; landscaping and horticultural services; agriculture-related support services; and food manufacturing. According to the 2021 report, The Economic Impact of Agriculture in Pennsylvania: 2021 Update, agriculture continues to be a leading contributor to the Commonwealth’s economy, contributing $1 of every $16 in gross state product, with every dollar of direct output generating $0.63 in additional economic activity. In addition, agriculture supports one out of every 10 jobs in Pennsylvania and seven jobs per $1 million of output. In 2019 alone, the total direct and indirect economic impact of agriculture within Pennsylvania was an estimated $132.5 billion.
Pennsylvania farmers have always taken their role as stewards of the land seriously and, especially in the more than one-half of the state that lies within the Chesapeake Bay watershed, are increasingly implementing climate-friendly solutions, including methane digesters and solar energy systems, to meet both the environmental and economic challenges posed by the Bay restoration efforts. Pennsylvania farmers understand the virtue of sustainability. Yet increasingly, farmers are being asked to produce more using fewer resources—all the while decreasing agricultural GHG emissions. Therefore, we believe that this illustrates that voluntary, market-based incentives are helping farmers accomplish these milestones all while mitigating their climate impact.
Given the size of Pennsylvania’s agricultural economy and the industry’s importance to the Commonwealth, as well as the vast array of state, federal and local regulations that our members must navigate to remain in compliance and continue to provide food, fuel and fiber to serve both domestic and foreign consumers, there is never a “good” time to proposed yet another requirement for farmers to meet. However, the current economic environment of rampant inflation and higher costs for virtually all inputs farmers use to produce and transport that food, fuel, and fiber to market, there certainly could not be a worse time for the Commission to propose this rule.
Our members are committed to transparency in climate-related matters to inform our stakeholders in a manner consistent with existing practices in the agriculture industry. However, without changes and clarifications, the proposed rule would be wildly burdensome and expensive—if not altogether impossible—for many small and mid-sized farmers to comply with, as they require reporting of climate data at the local level. When farmers cannot afford the overhead required to comply, they will have no choice but to consolidate. Such consolidation would have far-reaching socioeconomic consequences, including further eroding rural tax bases. Because of population declines in rural communities, farmers are already bearing a greater share of the tax burden in such communities. If further consolidation were to occur, this could seriously impede the ability of local communities to fund education, social services, and access to health care.
It is important to also realize that farming plays a vital role in the social fabric of rural Pennsylvania communities that revolve around the agricultural industry, especially for small and medium-sized farmers. We do not believe the SEC has fully considered nor has sufficiently sought to mitigate the potential socioeconomic impact of the proposed rule on agricultural communities. We also believe that the proposed rule will not only adversely impact farmers, but also harm consumers and erode the strength of Pennsylvania’s agricultural industry. To avoid these consequences, in the final adopted rule, we highly encourage the Commission to consider the following:
- Remove the “value-chain” concept from the proposed rule;
- Remove or substantially revise the Scope 3 emissions disclosure requirement to include a carveout for the agricultural industry;
- Remove the requirement that registrants provide disclosures pertaining to their climate-related targets and goals;
- Provide guidance with respect to the Consolidated Appropriations Act’s (2022) (the “CAA”) prohibition on mandatory GHG emissions reporting for manure management systems;
- Revise the proposed rule so that disclosures of GHG emissions operate in unison with existing federal emissions reporting programs;
- Ensure the final rule do not include location data disclosures for GHG emissions, which may inadvertently disclose the private information of our members; and
- Disimply a private right of action for Scope 1, 2, and 3 disclosures.
1. The proposed rule’s focus on the “value-chain” concept will place harmful burdens and costs on Pennsylvania farmers.
The requirement in the proposed rule for registrants to gather information from their value chain as it relates to climate-related risks and impacts from those risks and Scope 3 emissions will be extremely detrimental to Pennsylvania farmers.
The proposal defines “value chain” vaguely, extending upstream to “supplier activities” without a clear limitation and extending to an ill-defined downstream scope. Nearly every farmer, irrespective of size, at some point finds themselves in the upstream or downstream activities of a registrant’s value chain. The agriculture supply chain is also extremely diverse in terms of the products produced and the various roles in which the products play in the creation of a variety of other products as well (e.g., corn for livestock consumption as feed versus ethanol production as fuel).
Forcing the agriculture industry to disclose the litany of different ways in which our products are used will disproportionately impact our members. Many registrants will receive products from farmers at different steps throughout their value chain. Further, asking registrants to evaluate all the material risks arising from all of the small- and medium-sized farms in their respective value chain will lead to further consolidated supply lines, harming the nation’s rural communities in the process. Registrants will also likely demand additional data and information from farmers or default to engaging only with larger farmers that have more sophisticated data gathering and reporting systems or to simply vertically integrate their supply chains, leading to further consolidation.
The SEC should remove the expansive “value chain” concept from any final version of the proposed rule, which departs from historical SEC materiality standards, is overly vague, would impose considerable burdens onto registrants and harm Pennsylvania farmers.
2. Mandatory Scope 3 emissions disclosures will squeeze out small and mid-sized farmers.
Under the proposed rule, a registrant would be required to disclose Scope 3 emissions if such emissions are material or included in a previously disclosed emissions reduction target or goal. The proposed rule defines Scope 3 emissions as “all indirect GHG emissions not otherwise included in a registrant’s Scope 2 emissions, which occur in the upstream and downstream activities of a registrant’s value chain.” Our small- and medium-sized farm members are deeply concerned about the indirect economic effects of Scope 3 emissions disclosures and the impact on data privacy.
The proposed rule will inevitably require registrants to pass the costs and burdens of reporting Scope 3 emissions onto farmers. This is particularly problematic for Pennsylvania’s small- to medium-sized family-owned farms, which, as noted previously, are already dealing with increased production costs due to inflationary pressure and global supply chain disruptions. The burden of providing such disclosures and the estimation process would be hard for farmers to overcome. The average family farm already must take critical time away from the actual business of farming to demonstrate compliance with a tangled web of federal, state, and local regulation. A farm is not a power plant where a known quantity of fuel produces a known quantity of energy. On any given day, a farm may require more or less water, more or less fertilizer or crop protection products. Tracking such fluctuations in the context of GHG emissions would be daunting. Additionally, the likelihood that estimation methodologies will change over time risks causing confusion.
Further, and as the USDA acknowledges, data shows that the profitability of farmers increases with scale. Meaning, inevitably, a significant cost of the proposed Scope 3 disclosure would be borne by the least able to afford it—small- and medium-sized farms. Because our small- and medium-sized members often deal with thinner profit margins compared to their large peers, the proposed rule could lead to a market shift whereby registrants prefer to use only those farms that can afford to invest in the controls and processes necessary to track emissions down to the product level.
We believe that such a consequence would be disastrous for our small- and medium-sized farms, lead to further monopolization and vertical consolidation within the agriculture sector (harming farmers and consumers alike) and severally erode the gains made by farmers from historically underrepresented backgrounds. As for those farmers that can afford to invest in such technology and controls, they will be less able to invest in renewable or sustainable technology that could actually reduce the environmental footprint of the farm. For example, modernized irrigation systems that would reduce a farm’s water consumption, or reduced nitrogen fertilizer applications that would improve farming (land) regeneration, will be put aside in favor of emissions reporting and tracking software so that these farms do not risk losing business with their registrant partners.
Therefore, we believe that the Commission must remove the Scope 3 emissions disclosure in its entirety, or, alternatively, the Commission should provide a specific carveout for the agricultural industry. Such a carveout should explicitly make clear that registrants do not need to include Scope 3 emissions from the agricultural industry in their respective disclosures. This type of carve out is not unprecedented, and Congress has previously provided similar exemptions for the agricultural industry, such as Section 437 of the Consolidated Appropriations Act (CAA) (discussed in Section 4). By including such a carveout for the agricultural industry, the Commission would avoid the externalities associated with such a complex and difficult reporting regime, while also preserving the competitiveness of the agricultural industry.
3. Mandatory disclosures on climate-related targets and goals will disincentivize registrants from using sustainable agricultural products.
Our members are concerned that the Commission’s proposed rule on climate-related targets and goals could disincentivize companies from setting targets in the first place, diminishing the ability of Pennsylvania farmers to economically capitalize on climate-smart agriculture opportunities. Given the level of granularity and detail the proposed rule requires for companies that make such targets and goals, it seems reasonable that this will cause some registrants to not set them in the first place, or cause other registrants to retract previously set targets or goals.
4. The SEC should provide guidance to registrants on how they should exclude GHG emissions from manure management systems in their GHG emissions disclosures.
The SEC should provide guidance on how registrants should report GHG emissions in light of the prohibition on GHG reporting set forth in Section 437 of the CAA. Section 437 of the CAA states that “[n]otwithstanding any other provision of law, none of the funds made available in this or any other Act may be used to implement any provision in rule, if that provision requires mandatory reporting of greenhouse gas emissions from manure management systems.” Section 437 prohibits all agencies government-wide—including the SEC—from using funds to require mandatory reporting of GHG emissions from manure management systems.
This prohibition extends to the use of non-appropriations funds (e.g., Section 31 fees) as money received by the government would be deposited in the Treasury per the Miscellaneous Receipts Act, and use of such funds would still be considered a federal appropriation. Under the proposed rule, presumably, registrants would be required to disclose GHG emissions from manure management systems, as the proposed rule provides no guidance with respect to how a registrant should exclude such emissions from its GHG emissions disclosure, and manure management is a significant part of dairy, meat, poultry and protein production.
Manure management systems are ubiquitous features of farms, and our members are concerned with the lack of guidance with respect to the CAA prohibition and the SEC’s proposed rule. Therefore, our members recommend that the SEC should clearly indicate that registrants that operate manure management systems are not required to disclose such GHG emissions and provide guidance to registrants and auditors on how they should exclude such emissions from their respective mandatory GHG disclosures.
5. Location data about the source of emissions may create privacy concerns for farmers.
Question 108 of the proposing release requests if the SEC should require registrants to provide location data for its GHG emissions in the final rule. We urge the SEC not to adopt such a requirement in any final rule, as this may result in serious privacy concerns for farmers. If registrants are required to disclose the location of sources of GHG emissions in their value chain, this may inadvertently reveal to the public data about a farmer at a particular location. Greater access to farmer data creates serious privacy concerns. Courts have protected farmers from disclosure of personal information and have recognized that farmers are uniquely situated in that they generally live on their farm, meaning that business information is also personal information.
6. Any final rule should provide a more robust safe harbor that precludes all implied private rights of action for alleging defects in quantitative Scope 1, 2, or 3 disclosures.
In any final rule, the Commission should provide a stronger safe harbor for the disclosures of Scope 1, 2 and 3 emissions. Under the proposed rule, Scope 3 disclosures are deemed not fraudulent unless made or reaffirmed “without a reasonable basis” or disclosed “other than in good faith.” However, PFB does not believe this would serve as a meaningful roadblock to litigation for a plaintiffs’ class action counsel, who routinely plead around this requirement.
To remedy these concerns, we believe that the Commission can and should provide a more robust safe harbor that precludes all implied private rights of action alleging defects in quantitative Scope 1, 2 or 3 disclosures. The Commission’s authority to disimply the Rule 10b-5 private right of action for Scope 1, 2 or 3 disclosures is supported both by prominent legal scholars and the Supreme Court. A robust safe harbor of this nature would provide the appropriate level of liability protection for Scope 1, 2 or 3 disclosures and incentivize registrants to provide voluntary disclosures. At the same time, the SEC and the Department of Justice would retain the authority to institute proceedings alleging defects in Scope 1, 2, or 3 disclosures—providing the intended deterrent effect and ability to police against fraud—while minimizing the externalities, both in terms of increased insurance premiums and legal fees associated with such a novel and expansive disclosure regime as the proposed rule.
7. The Commission must consider the potential for legal challenges to the proposed rule.
In addition to the concerns with the specifics of the proposal, we urge the Commission to consider whether it has the legal authority to implement the proposed rule. Requiring this type of expansive disclosure raises questions under the compelled-speech doctrine.
Many registrants publish sustainability reports and are voluntarily trying to meet investor demand for climate-related disclosures. However, the proposed rule could be viewed as the Commission seeking to compel such speech in the form of SEC disclosures. Because of the magnitude of the SEC’s proposal that cuts across every aspect of the U.S. economy–and beyond–the Commission should consider whether this is a matter for the Congress to act or direct, before embarking on this rulemaking. Along the same lines, the SEC should revisit whether its existing statutory authority—granted by Congress—is sufficient to require the detailed disclosure of climate-related metrics, and in particularly, whether the proposed rule satisfy the requirements set forth in Section 13(a) of the Exchange Act. The SEC should strongly consider these and other legal principles before finalizing a climate-related disclosure rule.
In closing, we appreciate the opportunity to provide comments on the proposed rule and would be happy to discuss these comments and our members’ concerns or provide you with further information to the extent you would find it useful.
Grant R. Gulibon
 Econsult Solutions, Team Pennsylvania and the Pennsylvania Department of Agriculture, “The Economic Impact of Agriculture in Pennsylvania: 2021 Update,” https://www.agriculture.pa.gov/Documents/2021%20Pennsylvania%20Agriculture%20Economic%20Impact%20Report.pdf.
 Maureen Manier, Study: Rural-urban divide grows in response to decades of state overhauls, Purdue University (Jul. 15, 2020), available at https://www.purdue.edu/newsroom/releases/2020/Q3/study-rural-urban-fiscal-divide-grows-in-response-to-decades-of-state-tax-overhauls.html (Stating that “[r]ising farmland values improve a rural county’s ability to fund its basic services, but they also mean that more tax burden is placed on the shoulders of farmers as their county population declines.”)
 As an example of the complexities in the system, ethanol is generally produced from corn. Its production into ethanol, which happens through fermentation, generates CO2. Much of that CO2 is captured and then transformed into dry ice, which is often utilized at meat packing plants. Distiller grains, a byproduct of the ethanol industry, are also routinely sold and consumed as feed for livestock.
 See Robert A. Hoppe, Profit Margin Increases With Farm Size, U.S. Department of Agriculture (Feb. 2, 2015), available at https://www.ers.usda.gov/amber-waves/2015/januaryfebruary/profit-margin-increases-with-farm-size/.
 See id.
 It is important to realize that not everything produced for sale on a farm emits the same amount of GHG emissions, and farms sell multiple products all of which emit varying levels of GHG emissions. Thus, our members will need to individualize their GHG emissions calculations down to the product level, which will cost even more resources than a system that purely tracks all gross emissions for a single product output.
 See Consolidated Appropriations Act, 2022, H. R. 2471—372, 117th Cong. §437 (2022).
 Consolidated Appropriations Act, 2022, H. R. 2471—372, 117th Cong. §437 (2022).
 See id.
 Congressional Research Service, Congress’s Power Over Appropriations: A Primer, (Jun. 16, 2022), available at https://crsreports.congress.gov/product/pdf/IF/IF11577.
 The Enhancement and Standardization of Climate-Related Disclosures for Investors, 87 Fed. Reg. 21334, 21382 (Apr. 11, 2022).
 See American Farm Bureau Federation v. EPA, 836 F.3d 963 (8th Cir. 2016) (public disclosure of farmers’ personal information would constitute a “substantial” and “clearly unwarranted invasion of privacy” and is therefore exempt from disclosure under the Freedom of Information Act). See also Campaign for Family Farms v Glickman, 200 F. 3d 1180 (8th Cir. 2000) (whether acting in a personal capacity or as a shareholder in a corporation, disclosure of financial records of individually owned businesses invokes need of personal privacy exemption, citing National Parks & Conservation Ass’n v Kleppe, 547 F.2d 673 (D.C. Cir. 1976)).
 See Joseph A. Grundfest, Disimplying Private Rights of Action Under the Federal Securities Laws: The Commission’s Authority, 107 Harvard Law Review 961-1024 (1994); see also, Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., et al., 552 U.S. 148 (2008).
 See generally 15 U.S. Code § 78m(a).