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Harvard Management Company Endorses Some Environmental Regulations in SEC Letter

The Harvard Management Company, which manages Harvard's endowment, is located in the Federal Reserve Bank Building in Boston.
The Harvard Management Company, which manages Harvard's endowment, is located in the Federal Reserve Bank Building in Boston. By Steve S. Li
By Brandon L. Kingdollar, Crimson Staff Writer

The Harvard Management Company advocated for new environmental disclosure rules under consideration by the U.S. Securities and Exchange Commission, while pushing back against the proposal’s broadest reporting mandate in a letter to the SEC.

In a letter to SEC Secretary Vanessa A. Countryman on June 6, HMC Chief Compliance Officer Kathryn I. Murtagh wrote that HMC supports the proposed requirement that publicly-traded companies disclose emissions data and other climate-related financial information.

“We have known for quite some time that climate change poses significant risks to both individual businesses and the financial system as a whole,” Murtagh wrote. “Disclosure of material, climate-related financial information by corporations is essential for investors to be able to identify and manage climate risks effectively.”

The proposed regulations, released March 21, would require all companies registered with the SEC to provide information annually on climate-related risks to their business, including their greenhouse gas emissions. As an investor, HMC would have access to these environmental reports.

The new rule would also mandate the release of financial data detailing the economic impact of efforts to transition to carbon neutrality, as well as climate-related events, such as flooding and wildfires.

In her letter, Murtagh endorsed the disclosure of greenhouse gas emissions categorized as Scope 1 and Scope 2 — but cautioned against a mandate on disclosing emissions in Scope 3.

Scope 1 incudes direct emissions from sources controlled by an company; Scope 2 includes indirect emissions from the purchase of energy; and Scope 3 includes all other indirect emissions in a company’s chain of production.

Murtagh wrote that while the requirement is reasonable for companies with self-set goals of reducing Scope 3 emissions, it may prove unfeasible for others.

“We urge the commission to exercise caution before adopting a broad-based requirement for Scope 3 emissions,” the letter reads. “We believe that the difficulties in obtaining the necessary data from third parties and methodological uncertainties around calculating Scope 3 emissions are real and could make the required materiality determination quite costly for registrants.”

Some activists have since criticized HMC’s position on Scope 3 emissions. In a June 21 Twitter thread, Fossil Fuel Divest Harvard called the letter an attempt at “lobbying against any teeth for the policy.”

“Thousands of investors and financial experts recently called for the SEC to mandate corporate carbon emission transparency,” the group wrote. “And then there was @Harvard, lobbying on behalf of corporations seeking to hide their full carbon footprint.”

HMC previously wrote to the SEC last summer, in June 2021, supporting increased environmental disclosure requirements, calling current voluntary disclosures insufficient to understand climate risks. In those proposed guidelines, though, HMC recommended that the SEC “consider a limited number of mandatory disclosures,” naming only Scope 1 and Scope 2 emissions as metrics that should be required.

The June 2022 letter comes amid a transition of the University’s endowment — valued at $53.2 billion as of 2021 — to greenhouse gas neutrality by 2050. Following years of public pressure, HMC committed to allowing all its remaining investments in the fossil fuel industry to expire, effectively divesting the University’s endowment from fossil fuels, in November 2021. HMC reported in February that its internal operations are set to be carbon neutral for the fiscal year 2022.

Yevgeny Shrago — the climate policy director at Public Citizen, a consumer advocacy nonprofit — said while the latest HMC letter “captures the right things” in its overall support of the proposal, its argument that the Scope 3 requirement would be overly burdensome is “puzzling.”

“If companies are already doing it, the hardest work has already been done,” Shrago said. “New disclosing companies, that’s an incremental addition, they just have to onboard suppliers, build additional information about customers.”

Shrago also noted that the SEC’s proposal includes provisions that would make emissions disclosure easier by allowing the use of estimates where exact data is too costly or difficult to obtain. The new rule would also allow for Scope 3 emissions to be presented as a range, rather than an exact figure.

“A registrant may use reasonable estimates when disclosing its [greenhouse gas] emissions as long as it also describes the assumptions underlying, and its reasons for using, the estimates,” the proposed rule reads.

Madison E. Condon, a professor of environmental law at Boston University, also noted that the Greenhouse Gas Protocol includes a detailed guide for calculating emissions based on standard information that most businesses already track.

Condon wrote in an email that the proposal will be a “very strong rule” even if the Scope 3 requirement is limited to companies who have already committed to reducing those emissions.

“Many companies have announced targets or choose to report Scope 3 already, and would therefore be covered anyway,” she wrote. “And the rest of the rule is just as, or more, important as emissions — getting financial statements aligned with sustainability claims and goals, this is all very important.”

Connor Chung ’23, a member of Divest Harvard, said he thought it was “profoundly strange” for HMC to recommend against the required disclosure of Scope 3 emissions, as it would not require them to provide any information to the SEC.

“Harvard Management Company wouldn’t really need to lift a finger as the reporting burden is on corporations,” Chung said. “It’s baffling why Harvard would be wanting less information that, for most companies, makes up a majority of their greenhouse gas emissions.”

HMC declined a request for comment, referring back to its letters to the SEC.

Shrago — who was actively involved with Harvard Forward, a student and alumni campaign that promotes climate consciousness and increased transparency on the University’s governing boards — said that HMC’s opposition to Scope 3 disclosure suggests a reluctance to fully consider the carbon impact of its investments.

“They’re worried that once they have that data, they’re gonna have to use it,” Shrago said.

—Staff writer Brandon L. Kingdollar can be reached at Follow him on Twitter at @newskingdollar.

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