May 18, 2022

The next step in
ESG investing

Guest: Joy Facos, Head of Sustainable Investing and Corporate Responsibility at Carillon Tower Advisers

In this episode of Markets in Focus

It’s not new for companies to report on their efforts to curb greenhouse gases and fight climate change, but there are few dependable and universal ways to compare one company to the next. Now the SEC has proposed new rules aimed at standardizing such disclosures. Joy Facos, Head of Sustainable Investing and Corporate Responsibility at Carillon Tower Advisers, explains why the proposed rules will help empower investors to make meaningful judgments about how companies’ work to sharpen the environmental, social, and governance (ESG) focus of their models might — or might not — create long-term value.

Subscribe where you listen to podcasts

Subscribe to Markets in Focus Podcast on Apple Podcasts Subscribe to Markets in Focus Podcast on Spotify


Matt Orton:
On Monday, March 21st, the SEC released its long-awaited proposed rules on climate-related disclosures. Coming in at over 500 pages the proposed rules are nearly as expansive as the obligations they seek to impose. These proposed rules are the result of a process that began a little over a year ago when then-acting SEC chair, Allison Herren Lee, sought input from investors, public companies, and other market participants regarding potential climate-related disclosures. The proposed rules represent a significant step toward recognizing the importance of climate change and its potential impact on businesses, investors, and financial markets.

Today I'm here with Joy Facos, Head of Sustainable Investing and Corporate Responsibility at Carillon Tower Advisers, to help us break down some of the key aspects of the proposed rules and why they represent such an important milestone for both sustainable and mainstream investing alike. This is Markets in Focus from Carillon Tower Advisers. I'm your host, Matt Orton. Join me and my colleagues as we discuss the latest trends and developments driving the markets. Visit us at for additional episodes and insights. Joy, it's great to have you back joining us.

Joy Facos:
Thanks so much, Matt. I'm really happy to be back.

Matt Orton:
Well, great. So maybe first, could you just give us a high-level summary of what these proposed rules are?

Joy Facos:
Well, Matt, I'll do my best to summarize as you pointed out over 500 pages, but basically the proposed rules reflect the acknowledgement that climate change can potentially have a significant impact on public companies both in terms of risks and opportunities, and seek to standardize decision-useful climate-related disclosures. The three words that appear throughout the document are consistency, comparability, and reliability.

Matt Orton:
So this might be a silly question, but haven't companies already been reporting on climate-related risks and greenhouse gas emissions?

Joy Facos:
Yes, they have, but not in a consistent manner. The reporting frameworks that are out there, the Global Reporting Initiative or GRI, CDP, formally known as the Carbon Disclosure Project, SASB, the Sustainability Accounting Standards Board, et cetera, all of those are voluntary in nature and as such lacked the consistency, comparability, and reliability necessary for meaningful financial analysis.

Matt Orton:
Okay, that's good context and hopefully I won't get too lost in the alphabet soup of all of the acronyms that exist.

Joy Facos:
That's what keeps it fun.

Matt Orton:
I know. It makes us rely on others to help us, but the proposed rules, at least as I see them, I think represent a pretty significant and demanding expansion of existing disclosure requirements. Some of the most prominent obligations you've got impacts of climate-related risks on a company's business, financial statements, and business model over short, medium, and long term. Can you break down what exactly that means?

Joy Facos:
Well, first of all, I think it's important to note that the SEC did not put a definition around short, medium, and long term. They're really leaving that up to the reporting companies, which I think is really important when they're talking about these things and recognizing that businesses are going to have different approaches and some of them might already have embedded in their own strategic planning and business development, some of these efforts. So what they're trying to get to and to help companies outline this and help investors understand how the companies are approaching these issues, first and foremost, are the companies thinking about potential risks as well as potential opportunities that might be faced and how do they report them?

I think it's really also important to acknowledge that the SEC has recognized that this is a significant challenge and it was really careful to balance the need for improved disclosures with limiting compliance costs. So that's why they're leaning heavily on the widely accepted reporting framework and recommendations of the Task Force on Climate-related Financial Disclosures, TCFD if we didn't already have enough letters out there, and the Greenhouse Gas Protocol, or the GHG Protocol, which outlines standardized greenhouse gas accounting methodology. So it's really using that framework to allow companies to outline both the risks and the opportunities. It's also really significant that the SEC has outlined a phase-in for reporting as well as for third-party assurance requirements.

Matt Orton:
Yeah. You used the word opportunity which I think is interesting because I believe and I've only given a cursory glance over the highlights of this 506-page document, but I believe the SEC will allow companies not only to talk about risks, but also opportunities. How do you envision companies doing that or balancing that?

Joy Facos:
So I think first and foremost it's an opportunity for companies to say, "Okay, we do have these risks. There are these issues that we're facing, that our customers and our vendors are facing." And so that's why I think using the TCFD framework is really helpful here, because it really is built on four pillars and the first being governance, board and management oversight of climate-related risks and opportunities. So how is the board thinking about this? How is management thinking about this? And then the strategy, and that's where that short-, medium-, and long-term time horizon comes into play. How is the company changing up or adapting its strategy to recognize the risks, but also what opportunities are there for them?

Are there opportunities for innovation? Are there new ways of thinking about resource development? Are there new ways of thinking about how they can deploy renewable energy within not only their own operations, but how do they encourage it along their value chain? And so it's that idea of embracing innovation and how does that build into a company strategy and present as opportunities.

The third pillar of TCFD really is around that focus on risk and risk management. And they're really looking at two components of risk. One is the transition risk: the transition to a lower carbon economy. What does that do to a company's strategy? What does it do to its potential revenue stream? Again, that's also where opportunities can be uncovered. What kinds of new businesses might a company be thinking about or new approaches to its business as we transition to a lower carbon economy?

The other component of risk management in this framework is the idea of physical risk, and that's physical risk that is created with extreme weather, wildfires; that's that idea of acute risk. And then of course, that's the idea of chronic physical risk that a rising sea level situation could present, in particular for companies with operations in low-lying areas, along coastal areas; how are they rethinking their transportation, for example? How are they thinking about where they in fact operate and also how do they think about their employees through all of this?

And so, then there's the fourth component and this is really where the rubber meets the road on the targets and metrics. So that's the fourth pillar of that TCFD framework. What are the metrics and the targets? And that's really what this rule is getting at. So if we are looking at a net-zero commitment, a reduction of Scope 1, 2, and 3 greenhouse gas emissions, how are they going to get there? How are they measuring? How are they reporting?

And that's why this reporting is so important because it allows investors and other interested parties to understand how a company is reducing its greenhouse gases, how it's contributing to a lower carbon economy and able to track their progress along that trajectory. So again, it's this basic framework that is useful as it provides a fuller picture of a company's strategy, resilience, and ability to survive as well as thrive in the face of climate change.

Matt Orton:
And can you just refresh my memory between the differences in Scope 1, Scope 2, and Scope 3 greenhouse gas reductions?

Joy Facos:
Yeah. I mean, that's where it can get a little complicated and that's where the Greenhouse Gas Protocol comes in very handily and it will help companies in their reporting as well as the companies that are going to be charged with providing assurances on some of these metrics. So these scopes refer to those greenhouse gas emissions which need to be reduced significantly over the next 30 years in order to keep global temperatures from rising more than 1.5 degrees Celsius above pre-industrial levels by the end of this century. And that's really necessary in order to stave off the worst effects of climate change.

I'm going to go through this and give it just the broadish brush possible, but Scope 1 emissions are considered direct emissions produced by a company and produced by its operations. Scope 2 emissions are considered indirect and are related to the generation of electricity purchased by the company. And then Scope 3 – and this is where it gets really challenging to capture this data – but Scope 3 emissions are also indirect and are emissions not captured elsewhere and can include emissions related to, like, business travel, transportation of goods, emissions related to the use of a company's products. That's particularly important in the case of an oil and gas producer, for example.

So that's the really tricky part of all of this and that's probably where the SEC is going to see some pushback maybe during this comment period about the phase-in of Scope 3 emissions. How do you realistically provide assurances around that? That's why, again, the assurance component of this proposed rule is also a phased-in component. So I mean, this data really is very important to capture and for companies to really focus on reducing. It goes back to you can't manage what you can't measure. So that's why this measurement is so critical going forward. So that's, again, really high level, very broad brush definitions of Scope 1, 2, and 3 greenhouse gas emissions.

Matt Orton:
Thank you. That's definitely good context to keep in mind, and I would think sustainable investors have been looking at this information for a while, but it seems to me that this is going well beyond just ESG focused and trying to make it applicable to all investing. Do I have that right or do you think this is too niche?

Joy Facos:
No, actually I think you're spot on here, Matt. I think that the key thing to keep in mind in all of this work is that climate change affects us all. These proposed rules should help investors of all stripes evaluate the climate-related risks and opportunities associated with investments under considerations. I'd like to stress that these are proposed rules only. The SEC is seeking comment from the public and has specific questions throughout the document for which they're seeking input. I think I heard somebody talk on this yesterday, that there are about 198 embedded questions throughout this document where there's specifically asking interested parties for their input on these questions.

So, I think that's really fascinating with how the SEC is approaching this and how they're seeking public comment. The sheer page count can be really intimidating, but honestly it is worth checking out. Actually the last part of it really it's called Part 229, probably on page 490 something or like that. But that's where it outlines specifically what they're looking for and how to respond to these questions.

So, honestly, while we are talking about it being over 500 pages, really it's not as bad as it sounds. You've got double spacing, wide margins, lots of footnotes. I wouldn't say it's great beach reading, but I would say that it is time well spent to go through these pages and see how financial statements might changing in the coming months.

Matt Orton:
Yeah. I think that's a good point because it is going to impact all of us on the investment side. And for our listeners, the public comment period is open until May 20th, 2022. So it is coming up pretty soon. And Joy I want to ask you another question as well, because I'm sure some of the folks who are listening to this are probably saying all of these acronyms, all of these changes, whether or not they're part of TCFD and are already kind of well-known with respect to the frameworks that they're supposed to follow. I think there might be a perception that this just seems like it's too much, it will impose too much of a cost, are people actually really going to read through of this. What are your thoughts there because obviously I think you're very optimistic about this? How would you push back to those sorts of comments?

Joy Facos:
Well, I think it goes back to what do prudent investors look for when they're looking at a company? They're looking to see how well is that company managed and are they thinking long term about their business and are they thinking critically and are they, in fact, capturing the information necessary to manage that business responsibly? So I think it's one of those things where the pushback I'm sure it's going to come, but again, for investors who are looking at and need to evaluate the risk/reward proposition, I think this information is critical in really taking that into consideration.

When talking to company management, when looking at company strategy as outlined in a 10-K, are they really thinking about real world issues that we are all facing and are they contributing to the problem or are they helping to solve the problem? I think, again, as we progress, as we're seeing more and more instances of severe weather occurrences around the globe, I think climate change is a real issue and companies need to be able to incorporate that into their business planning and into how they move going forward.

Matt Orton:
Yeah. That's helpful context. And to me I hear that as it's kind of going after greenwashing, which is something that's difficult for investors to really sift through it and know what's real versus what isn't. And I guess my last question for you, and I think you've alluded to this in our discussion, but if you can talk about the phase-in periods and any sort of accommodations around the actual implementation of this going forward.

Joy Facos:
Okay. I don't have the phase-in table in front of me, but it is something that would take effect for larger companies I believe it's fiscal year 2023 for reporting in 2024. Again, a lot of it is for larger companies, companies that may have already been capturing this information. The real change is going to be in the assurances provided and I believe the assurance component kicks in around 2025-26, but I would have to go back and take a look at that. I don't have that in front of me.

Matt Orton:
No, I think that's helpful and it seems like it's here so we need to start getting ready. And I think that's all the time that we have today, but this has been incredibly helpful just to break down what these rules actually mean and the importance I think that's being placed on the E within ESG going forward. So Joy, it's always wonderful to have you on this podcast and to our listeners, thanks for tuning in and until next time, take care.

Thanks for listening to Markets in Focus from Carillon Tower Advisers. Please find additional episodes and market insights at You can also subscribe to our podcast on Apple Podcasts, Spotify, or your favorite podcast app. Until next time, I'm Matt Orton.


Podcasts are for informational purposes only. This channel is not monitored by Carillon Tower Advisers. Please visit for additional disclosure. This material is a general communication being provided for information purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature, or other purpose in any jurisdiction, nor is it a commitment from Carillon Tower Advisers or any of its affiliates to participate in any of the transactions mentioned here in.

Any examples used are generic, hypothetical, and for illustration purposes only. This material does not contain sufficient information to support an investment decision and you should not rely on it in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax credit and accounting implications and make their own determinations together with their own professionals in those fields.

Any forecasts, figures, opinions, or investment techniques and strategies set out are for information purposes only based on certain assumptions and current market conditions and our subject to change without prior notice. All information presented here in is considered to be accurate at the time of production, but no warranty of accuracy is given and no law liability in respect of any error or omission is accepted. It should be noted that investment involves risks. The value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements, and investors may not get back the full amount invested.

Both past performance and yields are not reliable indicators of current and future results. Past performance does not guarantee or indicate future results. There is no guarantee that these investment strategies will work under all market conditions and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investing involves risk and may incur a profit or loss. Investment returns in principle value will fluctuate so that an investor's portfolio when redeemed may be worth more or less than their original cost. Diversification does not ensure a profit or guarantee against loss.

CTA22-0313 Exp. 5/18/2024