ISDA Urges SEC to Exclude Derivatives from Greenhouse Gas Disclosures

ISDA urged the SEC to exclude all derivative transactions from its proposed rule amendments that would require funds to provide disclosures as to greenhouse gas ("GHG") emissions.

In a Comment Letter, ISDA said that the SEC should reconsider treating a derivative that references a portfolio company as "an equivalent position in the securities of the portfolio company" for purposes of GHG emissions calculations. ISDA stated that if the SEC elects to include derivatives transactions in such calculations, the SEC should provide a universal formula to prevent inconsistency across the industry, adding that there is currently no standard to assess GHG emissions for equities. ISDA also questioned how the calculations would work, calling attention to issues such as whether short and long derivatives positions "net out" to zero emissions.

Further, ISDA expressed concern that the proposal would treat derivatives and securities as equals on a "one-to-one" basis, which may also lead to an inaccurate reflection of a fund's ESG exposure. To address these issues, ISDA urged the SEC to allow industry participants more time to assess the proposed impacts and develop standards accordingly.

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