Thank you, Cindy [Fornelli] for that kind introduction.
It is a pleasure to be attending this virtual conference with investors from around the world. Perhaps, now more than ever, investors need advocates and these forums to discuss and further their perspectives and interests.
Before I continue, I should remind you that the views I am expressing today are my own and do not necessarily reflect the views of my fellow Board members or the staff of the Public Company Accounting Oversight Board ("PCAOB").
I'm guessing that when you think about Environmental, Social and Governance or ESG disclosure, audit regulators are not usually top of mind. Today, though, I want to share some thoughts about why they should be. The PCAOB and other audit regulators have an important role to play in the ESG disclosure space.
We all know that ESG disclosure has undergone exponential growth, both in quantity and importance. These days it's almost impossible to pick up a newspaper or read articles via the Internet without seeing the effects of climate change, whether disappearing polar ice, rising temperatures and sea levels, the increasing severity in weather patterns, the out-of-control fires in the Western United States, or the global discourse on mandating limits on carbon emissions. Given the importance of the area, investors and other participants in the capital markets are increasingly demanding high-quality disclosure that can be useful in making investment and voting decisions.
ESG-related disclosure, however, suffers from a number of qualitative concerns that limit its utility. Not subject to, or measured against, universally accepted reporting standards, concerns can arise with respect to the comparability and completeness of the information. Not subject to a mandatory system of assurance, concerns can exist about consistency and reliability.
Not all ESG matters raise these concerns: ESG matters can and do directly affect the financial statements. Financial statements may include assumptions, estimates, and valuations that are materially impacted by the effects of climate change. In these circumstances, accounting standards ensure some degree of consistency and comparability; independent audits provide some level of completeness and reliability.
These advantages notwithstanding, investors often are left unaware of the role of climate change and other ESG matters in the financial statements. Steps taken by audit firms to become comfortable with these often difficult, uncertain, and challenging matters have generally not been made public.
This, however, has begun to change.
Last year, audit firms for the largest public companies in the United States were required, for the first time, to include in their reports a discussion of "critical audit matters" ("CAMs"). This is a new source of disclosure for investors, emanating not from management but from audit firms. Critical audit matters are intended to extend to the areas of the audit that are particularly difficult and particularly important. The uncertainties and complexities associated with auditing the areas of the financial statements that contain assumptions and impacts of the effects of climate change and other ESG matters can certainly qualify as a critical audit matter under this standard.
The disclosure of CAMs brings with it a host of benefits. Not only is the firm identifying a difficult area of the audit, but the matter may receive increased attention from audit committees and be a catalyst for improved disclosures in the financial statements included in regulatory filings.
After one year of experience with this disclosure requirement, however, CAMs that address ESG matters, or ESG CAMs, remain uncommon, particularly those addressing the effects of climate change. Only three of the approximately 2,400 or so audit reports with CAMS appear to have included a meaningful discussion of the impact of climate change on the financial statements.
We are, however, at the early stages of the implementation of this important audit standard. The audit report and the discussion of ESG CAMs will presumably evolve in content, frequency, and usefulness. Both investors and regulators will have an important role to play in influencing the direction of this evolution.
So that's my topic for today.
I want to talk about how an auditor's discussion of critical audit matters, and in particular, ESG CAMs, can arm investors with new insights and information about uncertainties and judgments concerning the impact of climate change on the financial statements.
I will start with a brief exploration of the impact of ESG matters on various estimates and valuations and the role of the independent accounting firm in auditing these matters. I'll provide some insight into the ESG CAMs that we've seen so far.
Then I'll talk a bit about the evolution of ESG CAMs.
Investors and the PCAOB have an important, even critical, role to play in this evolution. In particular, the PCAOB is in a unique position to help ensure that ESG CAMs and other CAMs are disclosed in audit reports with the frequency required by the standard.
I will end by talking about ways you can participate in this evolution and encourage the degree of regulatory oversight that may be necessary.
I. Loitering in Winter while it is already spring: ESG Matters and the Financial Statements
ESG disclosure by public companies has become increasingly important to investors and other participants in the capital markets.
Some public companies include a variety of ESG metrics or information in periodic reports filed with the U.S. Securities and Exchange Commission ("SEC" or "Commission"). Many companies, however, disclose a host of ESG related data and information outside of the financial statements of required regulatory reports, such as in separate Taskforce on Climate-related Financial Disclosures ("TCFD") and other types of sustainability reports.
ESG disclosure, however, can raise qualitative concerns. For one thing, the absence of universally accepted reporting standards makes consistency and comparability an issue. For another, the absence of mandatory requirements for assurance can raise doubt about the completeness and reliability of the information.
Not all ESG matters, however, suffer from these concerns. ESG matters can also directly affect the financial statements of a public company. When ESG matters affect the assumptions and estimates that are embedded in the financial statements, a common set of accounting standards that help ensure comparability of the financial statements. The financial statements that embody the estimates, such as assumptions about future events and circumstances, audits by an independent accounting firm reduce the concerns over reliability and completeness.
In some instances, accounting standards may explicitly require the disclosure of ESG matters. Environmental cleanup costs may need to be estimated and disclosed, whether as a result of environmental remediation or plant decommissioning.
Mostly, though, the financial statements do not include specific line items that address the uncertainties and complexities of climate change. Instead, ESG matters may "overlap" with financial reporting standards and must be considered when relevant to an account or disclosure in the financial statements. Any number of estimates and valuations can be affected by climate change and other ESG matters.
The effect of ESG matters, particularly climate change, on financial statements is increasing. Laws and regulations designed to address climate change by limiting greenhouse gas emissions are under active consideration and, in some cases, have already been adopted. Japan recently pledged to become carbon neutral; Sweden has already passed the required legislation.
In the United States, a number of states and other jurisdictions have addressed carbon emissions. Louisiana has announced efforts to achieve reductions by 2025; California is banning the sale of gas powered automobiles after 2035. Last week, the New York Department of Financial Services mandated that all regulated financial institutions integrate the financial risks from climate change into their governance frameworks, risk management processes, and business strategies.
The list only grows.
At the same time, the discretion used to analyze the effects of climate change on the financial statements has narrowed. The days of optimistically thinking that the effects of climate change would be insignificant or modest appear to be over for many public companies. Climate change is accelerating and the likely impact on estimates and valuations is becoming more pronounced. Analyzing the impact, therefore, requires consideration of scenarios or models with increasingly severe outcomes. Simply assuming no effect or assuming the least disruptive effect will not in many cases be reasonable.
Independent accounting firms examine these estimates and valuations as part of the audit. Increasingly, the failure to consider the impact of climate change or the unreasonable assumptions of the impact will make more and more difficult for firms the ability to obtain the necessary degree of assurance required for an audit.
II. Any truth is better than make believe: ESG CAMs
ESG matters that affect the financial statements may benefit from common standards and assurance but they suffer from a lack of transparency. It is difficult, or sometimes, impossible for investors to know what ESG matters impact the business or the financial statements.
With respect to the financial statements, investors are often left unaware of the impact of climate change. Investors also face opacity with respect to the steps taken by the audit firm to get comfortable with management's approach to incorporating the effects of climate change in the financial statements.
Until recently, the reports issued by audit firms mostly gave a thumbs up or thumbs down perspective on the financial statements and provided little or no insight into the areas of the audit that were the most challenging.
That, however, has begun to change.
A. The Arrival of ESG CAMs
Beginning last year, independent auditors for the largest U.S. public companies were required to include in their audit reports a discussion of "critical audit matters" or CAMs. In a first, disclosure about an issuer's financial statements would emanate not from management but from audit firms.
Critical audit matters were intended to include the areas of the audit that kept the auditor up at night. Investors and other participants in the capital markets would learn about some of the challenges confronted by firms in auditing financial statements and some of the steps they took to become comfortable with difficult, complex, or subjective areas of the audit.
CAMs were meant to provide "audit-specific" insight in order to "address the information asymmetry between investors and auditors. . ." That meant doing more than generating generic or boilerplate language or simply identifying areas under the accounting standards that were inherently difficult.
Importantly, the auditing standard required the auditor to describe how the critical audit matter was addressed in the audit. In describing how the critical audit matter was addressed in the audit, the auditor could also describe: (1) the response or approach that was most relevant to the matter; (2) a brief overview of the audit procedures performed; (3) an indication of the outcome of the audit procedures; and (4) key observations with respect to the matter, or some combination of these elements.
B. The Benefits of ESG CAMs
Assessing the effects of climate change and other ESG matters on the financial statements can be uncertain, complex, and highly dependent upon the particular assumptions used by management. These are the sorts of things than can keep an auditor up at night. The matters are therefore obvious candidates for consideration as an ESG CAM.
Disclosure in the audit report of an ESG CAM provides far reaching benefits.
Foremost, they are the views of the auditor, not management. Auditors are speaking directly to investors about the challenges associated with assessing the impact of COVID-19 or the challenges of testing, assessing, and verifying a company's valuations or estimates concerning the impact of climate change. They may reveal concerns about management assumptions and scenarios. They may also reveal aspects the may not be readily apparent in the financial statements, such as reasonableness of assets lives and commodity prices used to support valuations or impairments, or management's intent.
Second, ESG CAMs can shed some light on the audit committee's role in considering the impact of climate change and related matters. Auditors are obligated under our standards to communicate certain matters to the audit committee, particularly about the risks associated with the audit and the financial statements. The hope is that these communications will generate a two way interactive discussion.
The standards require that CAMs will be discussed with the audit committee. As a result, inclusion of an ESG CAM means that the topic will have been communicated to, and discussed with, the audit committee. The discussion may be "robust" and audit committees may receive "further insights," including comparisons with other companies in the same industry. This can cause audit committees to take a "fresh look" at "their own company's disclosure."
Third, ESG CAMs can result in improved corporate disclosure. Audit firms often discuss CAMs with management. The process can cause management to revisit its own disclosure. Given the recent implementation of this requirement, it may be a bit early to determine the collateral effects of the disclosure of CAMs on SEC filings. Nonetheless, some academic research has at least suggested the possibility that improvements in corporate disclosure may be occurring, a conclusion consistent with research on the effects of "key audit matters" of K-CAMs.
Finally, even the absence of an ESG CAM can provide some potentially useful insight. Given the growing inevitability of climate change and the uncertainties around the extent of the effect, the auditor's principal consideration as to climate change was or was not an especially challenging, subjective, or complex judgment relating to material accounts or disclosures may be viewed as relevant in assessing a company's financial statements, its disclosures, and ultimately audit quality.
C. The Experience with ESG CAMs So Far
So those are the benefits. How often have these benefits occurred with respect to ESG CAMs?
Particularly with respect to those addressing climate change, not very often.
As of October 2020, CAMs have appeared in audit reports for around 2,400 public companies, with each averaging 1.7 CAMs. The most common topics included goodwill, revenue recognition, other intangibles, and business combinations.
ESG CAMs, in contrast, appeared rarely. Some ESG CAMs addressed cleanup costs, whether environmental remediation, or asset retirement obligations. Others involved a discussion of the impact of COVID-19 on various assumptions and estimates in the financial statements.
Of the approximately 2,400 reports that contained CAMs, only three appear to have included a meaningful and explicit discussion of the impact of climate change on the financial statements.
In one report, the auditor discussed management's estimates that were inconsistent with the 2050 "net zero" commitment " The auditor also observed that deprecating the assets in line with net zero targets would result in additional reductions to net income that were not reflected in the financial statements. The report also discussed how the auditor challenged management's assertion that carbon-emitting equipment could be used in alternative ways after a net-zero target date that supported management's estimate of operation until 2070.
Another audit report discussed how climate change and the global energy transition impacted the capitalization of exploration and appraisal costs. The auditor also focused procedures on the risk that oil and gas price assumptions could lead to material misstatements of the financial statements. Another audit report described the effect that long-term price assumptions incorporating the potential impact of climate change could have on asset values and impairment estimates.
Considering the increasing frequency that environmental trends, events, and uncertainties, including the lower commodity prices and margins resulting from a COVID-19 economic environment, can affect material accounts or disclosures in a public company's financial statements, I expected to see more auditor reports describing them in the future.
III. All the Branches and None of the Roots: Evolution and the Role of the PCAOB
We are only in the early days of a new and important disclosure requirements. ESG CAMs will presumably increase as the financial impact of ESG matters continues to accelerate.
The evolution of ESG CAMs, however, requires vigilance. Any number of disclosure requirements, over time, have devolved into boilerplate or, what an SEC official once labeled as "elevator music." Investors and regulators have an important role to play to make sure that this does not occur.
The PCAOB can assist in the evolution of this disclosure requirement through useful guidance, real time feedback, and timely comments made during the inspection process. The most important role for the PCAOB, however, may be to help ensure that CAMs, including ESG CAMs, are determined and communicated as required by the standard. Academic literature has suggested that the disclosures may not be disclosed with the frequency required by the standard. Moreover, ESG CAMs addressing climate change in a meaningful fashion have appeared only rarely.
The PCAOB is particularly well positioned to assess whether ESG CAMs are being disclosed with the frequency required under the auditing standard. Through the inspection process, the PCAOB has unique access to the approach taken by audit firms in deciding what should and should not be disclosed in a report.
Where climate change and other ESG matters were communicated to, or required to be communicated to, the audit committee but not included as an ESG CAM, the PCAOB may review the documented rationale for the decision. While the characterization of a matter as an ESG CAM can involve a high level of auditor judgment, there could be instances where the rationale was not documented or the documentation did not adequately support the decision to omit the matter from the audit report.
We also have a number of avenues available to share our inspection findings with the public. We can issue an anonymized report that describes what we learned. In addition, we can disclose these deficiencies in our public inspection reports. We just added a new section to the report that permits the disclosure of an expanded category of deficiencies, including those relating to critical audit matters.
Finally, I would add that ESG CAMs are not the only place where the PCAOB can play an important role in connection with ESG disclosures, including disclosure provided by public companies. The role of the audit firm role, if any, in providing assurance for ESG metrics as part of the audit, whether in SEC filings or in sustainability reports, is an important topic that should be addressed. The PCAOB, through possible revisions to our "other information" standard, could, in my view, bring the stakeholders together to discuss how best to resolve this issue.
IV. The Universe is Wider than our views of it: Evolution and the Role of Investors
Investors also have an important role to play a role in the evolution of ESG CAMs. Your role is really twofold.
Particularly with respect to ESG CAMs, you are the subject matter experts. You can provide feedback on the nature of the disclosure and areas where firms could provide more useful information.
Audit firms would benefit from this feedback. The requirement for auditors to directly speak to investors on critical audit matters is the first major change to the "thumbs up" audit report in over eight decades. In other words, this is a new requirement for them. Your feedback can help them determine the types of additional details that would render the critical audit matters more useful to you in making voting and investment decisions.
Your insight could also be useful topics for discussions with audit committees, including those at comparable companies where the audit report did not include an ESG CAM. The feedback could be helpful for those serving on these committees when they discuss the audit and the audit report with their independent accountant.
Your most important role, however, may be to encourage the PCAOB to apply the appropriate level of oversight to ensuring compliance with these new disclosure requirements. You can provide the PCAOB with qualitative feedback that may be useful in providing guidance. You can also discuss with the PCAOB your concerns, if any, over the frequency of disclosure. This can include instances where you have concerns that an ESG CAM may have been omitted.
But don't wait for the PCAOB to ask you for input or advice. Our outreach to investors is not always what it should be.
Instead, be proactive.
Ask to meet with us, whether the staff or the full board to share your views. Tell us what you think of ESG CAMs and how they can be better. Talk to us about our role in the evolutionary process.
I personally favor meetings since I think the Board and staff benefit from the back and forth that usually occurs. We can do them virtually for now. If that, however, won't work, write to us, whether by letter, email or other form of communication. Feel free to communicate with my office directly.
Finally, combine efforts. Talk with others in the various associations or organizations where you are members and encourage them to form a committee assigned to follow and interact with the PCAOB. The committee can follow issues, arrange meetings with the staff and board of the PCAOB, and lead the efforts of communications.
Let me end by saying that I am happy to further the conversation with those of you interested in these areas and look forward to our future interaction.
 Board Member, Public Company Accounting Oversight Board, (available at https://pcaobus.org/About/Board/Pages/J-Robert-Brown.aspx). These remarks are based on a panel discussion from ICGN's Global Virtual Summit (Nov. 4, 2020). The quote in the title is from Henry David Thoreau, Walden; or, Life in the Woods 350 (1854). I want to thank Clara Fryer, an intern in my office during the fall of 2020 for her valuable work on this statement.
 Climate-Related Market Risk Subcommittee, Market Risk Advisory Committee, Managing Climate Risk in The U.S. Financial System, CFTC (Sept. 9, 2020) (available at https://www.cftc.gov/About/AdvisoryCommittees/MarketRiskAdvisory/MRAC_Reports.html) ("Large companies are increasingly disclosing some climate-related information, but vary significantly in the specific information they disclose, presenting a challenge for investors and others seeking to understand exposure to and management of climate risks.").
 See Public Companies Disclosure of Environmental, Social, and Governance Factors and Options to Enhance Them, GAO (July 2020) ("differences in methods and measures companies used to disclose quantitative information may make it difficult to compare across companies.") (available at https://www.gao.gov/assets/710/707949.pdf).
 See Managing Climate Risk in The U.S. Financial System, supra note 2 (Recommendation 5.1: "Financial regulators, in coordination with the private sector, should support the availability of consistent, comparable, and reliable climate risk data and analysis to advance the effective measurement and management of climate risk.").
 See Concept Release, International Accounting Standards, Exchange Act Release No. 42430 (Feb. 16, 2000) (available at https://www.sec.gov/rules/concept/34-42430.htm) ("U.S. accounting standards provide a framework for reporting that seeks to deliver transparent, consistent, comparable, relevant and reliable financial information.").
 Audit firms provide "reasonable assurance" that the financial statements are free from material misstatements due to error or fraud.
 Paris-aligned Accounts: Investor Expectations, The Institutional Investors Group on Climate Change , 4 (Oct. 2020) ("At present there is little evidence that companies are taking decarbonisation or the physical impacts from climate change into account as they draw up their financial statements. This is true even where their strategic report or management discussion outline detailed climate risks as recommended by the Task Force on Climate-related Financial Disclosures (TCFD).").
 Id. ("Apart from a few notable exceptions, auditors are likewise currently silent on whether financial statements are 'climate-proof'.").
 PCAOB Auditing Standard 3101 requires the communication of critical audit matters in a separate section of the auditor's report. The report must include identification of the critical audit matters, why the auditor considered them "critical," the related accounts and financial statement disclosures, and how the matters were addressed during the audit. This reporting does not change the auditor's opinion, but it provides additional insights into the audit issues. See PCAOB Auditing Standard 3101: The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion (available at https://pcaobus.org/Standards/Auditing/Pages/AS3101.aspx).
The requirement became applicable to reports issued for large accelerated filers with fiscal years ending on or after June 30, 2019, and for audit reports for all other companies for fiscal years ending on or after December 15, 2020. The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards, PCAOB Release No. 2017-001 (June 1, 2017) (available at https://pcaobus.org/Rulemaking/Docket034/2017-001-auditors-report-final-rule.pdf).
 Critical audit matters do not encompass every matter in the audit but apply to those matters that involve especially challenging, subjective, or complex auditor judgment and that "relate to accounts or disclosures that are material to the financial statements. . ." PCAOB Auditing Standard 3101.17 (available at https://pcaobus.org/Standards/Auditing/Pages/AS3101.aspx).
 A CAM is defined as any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that: Relates to accounts or disclosures that are material to the financial statements; and Involved especially challenging, subjective, or complex auditor judgment. An ESG CAM, as used in this speech, includes any critical audit matter that concerns ESG- related issues, such as COVID-19, environmental cleanup costs, and climate change, among others.
 Through October 8, 2020, 2,420 audit reports that contained CAMs were filed for issuers with fiscal years ends ranging between June 30, 2019, and June 29, 2020. Interim Analysis Report Evidence on the Initial Impact of Critical Audit Matter Requirements, PCAOB Release No. 2020-002 (Oct. 29, 2020) ("Interim Analysis Report") (available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/Documents/ARM-Interim-Analysis-Report.pdf).
 "We loiter in winter while it is already spring." Henry David Thoreau, Walden; or, Life in the Woods 346 (1854).
 See Public Companies Disclosure of Environmental, Social, and Governance Factors and Options to Enhance Them, supra note 3 ("While federal securities laws generally do not specifically address the disclosure of ESG information, Regulation S-K's disclosure requirements for nonfinancial information apply to material ESG topics.").
 See Managing Climate Risk in The U.S. Financial System, supra note 2 ("For all industries in which climate risk is material, the lack of comprehensive and comparable disclosure not only poses a challenge to investors seeking to assess, manage, and mitigate climate risk, but it also impedes the ability of disclosing organizations to inform their strategic responses to climate risk by benchmarking their performance against peer organizations.").
 See Disclose What Matters: Bridging the Gap Between Investor Need and Company Disclosure on Sustainability, CERES (Aug. 2018) (available at https://www.ceres.org/sites/default/files/reports/2018-08/Ceres_DiscloseWhatMatters_Final.pdf).
 Kyra Bros & Joyeeta Gupta, Stranded Assets and Stranded Resources: Implications for Climate Change Mitigation and Global Sustainable Development, ScienceDirect (Oct. 2019) (available at https://www.sciencedirect.com/science/article/pii/S2214629618305383) ("Second, ESG considerations can affect environmental remediation liability. Climate change can also arise in connection with the determination of contingent liabilities, including legal exposure due to environmental exposure.").
 See FASB Accounting Standards Codification Topic 410; FASB Accounting Standards Codification Topic 450; IFRS International Accounting Standard 37.
 See Marc Siegel, Should the FASB have a Role in Sustainability Disclosures?, FASB (available at https://www.fasb.org/cs/Satellite?c=Page&cid=1176168752524&pagename=FASB%2FPage%2FSectionPage) (". . . I believe that the FASB already does engage in these areas—when they intersect and overlap with the FASB's boundaries of financial reporting . . .So where do sustainability and/or ESG issues intersect with financial reporting? They overlap in FASB standards about recognition, measurement, presentation, and disclosure related to historical transactions or the financial position related to existing assets or liabilities.").
 Climate-related and Other Emerging Risks Disclosures: Assessing Financial Statement Materiality Using AASB/IASB Practice Statement 2, AASB (Apr. 2019) (available at https://www.aasb.gov.au/admin/file/content102/c3/AASB_AUASB_Joint_Bulletin_Finished.pdf) ("The potential financial implications arising from climate-related and other emerging risks may include, but are not limited to: asset impairment; changes in the useful life of assets; changes in the fair valuation of assets due to climate-related and emerging risks; increased costs and/or reduced demand for products and services affecting impairment calculations and/or requiring recognition of provisions for onerous contracts; potential provisions and contingent liabilities arising from fines and penalties; and changes in expected credit losses for loans and other financial assets.").
 See also Paris-aligned Accounts: Investor Expectations, supra note 7 ("Investors also expect auditors to provide reassurance that the accounts incorporate material climate risks, and whether or not the accounts can be considered Paris-aligned, as follows: Consideration of material climate risks: Confirmation that critical accounting estimates or judgements reflect material climate risks, in line with accounting standards.").
 Justin McCurry, Japan will become carbon neutral by 2050, PM pledges, The Guardian (Oct. 26, 2020, 3:04 PM), (available at https://www.theguardian.com/world/2020/oct/26/japan-will-become-carbon-neutral-by-2050-pm-pledges).
 Megan Darby, Sweden passes climate law to become carbon neutral by 2045, Climate Home News (June 15, 2017), (available at https://www.climatechangenews.com/2017/06/15/sweden-passes-climate-law-become-carbon-neutral-2045/).
 Associated Press, Destination 2050: Oil and gas hotbed state sets net zero carbon goal, Power Associated Press, Destination 2050: Oil and gas hotbed state sets net zero carbon goal, Power Eng'g (Aug. 21, 2020), (available at https://www.power-eng.com/2020/08/21/destination-2050-oil-and-gas-hotbed-state-sets-net-zero-carbon-goal/#gref) ("At least 23 other states and the District of Columbia have set greenhouse gas targets, though specifics vary, according to the Center for Climate and Energy Solutions.").
 Rachel Frazin, Louisiana aims for net-zero emissions by 2050, The Hill (Aug. 19, 2020, 4:58 PM), (available at https://thehill.com/policy/energy-environment/512792-louisiana-aims-for-net-zero-emissions-by-2050) ("The state aims to reach at least a 26 percent reduction in greenhouse gas emissions by 2025 compared to 2005 figures. Five years later, it aims to have reduced emissions by at least 40 percent of the 2005 figure.").
 Governor Newsom Announces California Will Phase Out Gasoline-Powered Cars & Drastically Reduce Demand for Fossil Fuel in California's Fight Against Climate Change, CA.gov (Sept. 23, 2020) (available at https://www.gov.ca.gov/2020/09/23/governor-newsom-announces-california-will-phase-out-gasoline-powered-cars-drastically-reduce-demand-for-fossil-fuel-in-californias-fight-against-climate-change/).
 See Press Release, Superintendent Lacewell Announces DFS Expands Efforts to Ensure Financial Services Industry Manages Financial Risk from Climate Change, N.Y. State (Oct. 29, 2020) (available at https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202010291).
 Alastair Marsh, Investors Call for Climate Disclosures in Company Accounts, Bloomberg Green (Sept. 16, 2020, 4:00 AM), (available at https://www.bloomberg.com/news/articles/2020-09-16/investors-call-for-climate-disclosures-in-company-accounts) ("Climate change will have a major effect on companies' profits and the value of their assets, so its impact should be reflected in their accounts. That's the conclusion of investors managing more than $100 trillion.").
 See Stathis Gould & Jimmy Greer, Risk, Scenarios and Reporting: Three Key Areas for Accountants to Advance Climate Action, IFAC (Oct. 9, 2020) (available at https://www.ifac.org/knowledge-gateway/discussion/risk-scenarios-and-reporting-three-key-areas-accountants-advance-climate-action) ("The practical preparation and presentation of scenarios help to identify the specific and relevant factors that can impact financial results.").
 Scenarios prepared in connection with an assessment of sustainability risk may be useful in performing this analysis. See Hans Hoogervorst, Chair, IASB, Keynote Address, IFRS Foundation Virtual Conference (Sept. 28, 2020) (available at https://www.ifrs.org/news-and-events/2020/09/speech-iasb-chairs-keynote/) ("Another benefit of sustainability reporting is that it may serve to make a company aware of the financial consequences of such issues much earlier. It might lead to the effects of sustainability issues being reflected in the financial statements earlier than may have been the case in the past. For example, it might be that the scenario analyses suggested by the Taskforce on Climate-related Financial Disclosures (TCFD) [and other initiatives] have heightened the awareness of oil companies to the long-term financial risks of energy transition.").
 See Alastair Marsh, supra note 28 ("Where climate change is a material issue, company accounts should be drafted using assumptions and estimates compatible with the economic realities of a warming planet and in line with the temperature targets of the Paris climate accord, the investors said. Auditors should only sign off on reports that include such evaluations, they said."); see also Paris-aligned Accounts: Investor Expectations, supra note 7 ("Investors also expect auditors to provide reassurance that the accounts incorporate material climate risks, and whether or not the accounts can be considered Paris-aligned, as follows: . . . Paris-alignment: Confirmation as to whether or not these critical assumptions and estimates can be considered Paris-aligned. If not, whether Paris-aligned assumptions have been adequately considered and disclosed in the notes to the financial statements. Where Paris-aligned numbers are not provided, the auditor should indicate what reasonable Paris-aligned assumptions would be.").
 Henry David Thoreau, Walden; or, Life in the Woods 360 (1854).
 See supra note 7; see also Addressing Climate as a Systemic Risk, Ceres, 31 (June 2020) (available at https://www.ceres.org/sites/default/files/reports/2020-06/Financial%20Regulators%20FULL%20FINAL.pdf) ("the quality of climate change disclosure in financial filings remains poor, with little quantification of risks and little decision-useful information.").
 See PCAOB Auditing Standard 3101, supra note 9. As the standard provides: "The auditor must communicate in the auditor's report critical audit matters relating to the audit of the current period's financial statements or state that the auditor determined that there are no critical audit matters." PCAOB Auditing Standard 3101.13 (available at https://pcaobus.org/Standards/Auditing/Pages/AS3101.aspx). Critical audit matters must be communicated in a separate section of the auditor's report, must identify the critical audit matters, why the auditor considered them "critical," the related accounts and financial statement disclosures, and how the matters were addressed during the audit. This reporting does not change the auditor's opinion, but it provides additional insights into the audit issues.
 PCAOB Auditing Standard 3101.11 (available at https://pcaobus.org/Standards/Auditing/Pages/AS3101.aspx) ("A critical audit matter is any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex auditor judgment. Critical audit matters are not a substitute for the auditor's departure from an unqualified opinion (i.e., a qualified opinion, adverse opinion, or disclaimer of opinion on the financial statements as described in AS 3105).").
 PCAOB Release No. 2017-001, supra note 9 ("The determination [of a CAM] should be made in the context of the particular audit, with the aim of providing audit-specific information rather than a discussion of generic risks.").
 See Staff Guidance: Implementation of Critical Audit Matters: A Deeper Dive on the Communication of CAMs, PCAOB (available at https://pcaobus.org/Standards/Documents/Implementation-Critical-Audit-Matters-Deeper-Dive-Communication-of-CAMs.pdf) ("Avoid the use of boilerplate language and overly technical accounting and auditing terms"); see also Public Company Accounting Oversight Board; Order Granting Approval of Proposed Rules on the Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and Departures from Unqualified Opinions and Other Reporting Circumstances, and Related Amendments to Auditing Standards, Exchange Act Release No. 81916 (Oct. 23, 2017) (available at https://www.sec.gov/rules/pcaob/2017/34-81916.pdf) (noting that the PCAOB declined to include "examples" because inclusion "may lead to more boilerplate descriptions").
 In approving the requirement, the Chairman of the SEC noted concerns with the use of boilerplate. See Jay Clayton, Chairman, SEC, Statement on SEC Approval of the PCAOB's New Auditor's Reporting Standard (Oct. 23, 2017) (available at https://www.sec.gov/news/public-statement/clayton-statement-pcaob-new-auditor-reporting-standard) ("As discussed in the Commission's approval order, some commenters raised questions about the PCAOB's rule. These questions included whether CAMs will result in an increase in litigation that does not benefit investors; whether CAMs will convey meaningful information specific to the audit or will instead provide boilerplate; and whether CAMs will chill auditor-audit committee dialogue. I am sensitive to these concerns.").
 PCAOB Release No. 2017-001, supra note 9 ("The determination [of a CAM] should be made in the context of the particular audit, with the aim of providing audit-specific information rather than a discussion of generic risks.").
 PCAOB Auditing Standard 3101.14 (available at https://pcaobus.org/Standards/Auditing/Pages/AS3101.aspx).
 Brian Bratten, Monika Causholli & Valbona Sulcaj, Overseeing the external audit function: Evidence from audit committees' reported activities (2020) ("Little is known about whether and how audit committees fulfill their oversight duties, since the reporting requirements about audit committee oversight have not kept up with the responsibilities they have assumed over the years.").
 PCAOB Auditing Standard 1301: Communications with Audit Committees (available at https://pcaobus.org/Standards/Auditing/Pages/AS1301.aspx).
 Communications must include "[h]ow current and anticipated future events might affect the determination of whether certain policies and practices are considered critical." PCAOB Auditing Standard No. 16: Communications with Audit Committees (available at https://pcaobus.org/Standards/Archived/PreReorgStandards/Pages/Auditing_Standard_16.aspx).
 Inspection Observations Related to PCAOB Rules and Auditing Standards on Communications with Audit Committees, PCAOB Release No. 2016-001 (Apr. 5, 2016) (available at https://pcaobus.org//Inspections/Documents/2016-communications-audit-committees.pdf) ("Effective two-way communication between the auditor and the audit committee throughout the audit will assist in understanding matters relevant to the audit and is beneficial to achieving the objectives of the audit.").
 See Letter from Deloitte to PCAOB, Interim Analysis No. 2020-01, Critical Audit Matter Requirements (June 15, 2020) (available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/PostImplementationReviewAS3101UnqualifiedOpinion/20_EY.pdf) (noting that CAMs were discussed "with the audit committee and management.").
 Letter from KPMG to PCAOB, Interim Analysis No. 2020-01, Critical Audit Matter Requirements (June 15, 2020) (available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/PostImplementationReviewAS3101UnqualifiedOpinion/17_KPMG.pdf) ("This new requirement in AS 1301 may have facilitated more robust discussions regarding the CAMs themselves, as well as the manner in which they were communicated in the auditors' report.").
 Letter from EY to PCAOB, Interim Analysis No. 2020-01, Critical Audit Matter Requirements (June 15, 2020) (available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/PostImplementationReviewAS3101UnqualifiedOpinion/20_EY.pdf) ("Communicating CAMs gave us additional opportunities to enhance our interactions with audit committees by engaging with them in conversations about the matters identified as CAMs. The CAM determination process allowed us to provide further insights to the audit committee about our risk assessment process. Our discussions with the audit committee about CAMs identified also provided the audit committee with additional perspective on factors that were significant to our determination of CAMs and our audit response.").
 Letter from Deloitte to PCAOB, Interim Analysis No. 2020-01, Critical Audit Matter Requirements (June 12, 2020) (available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/PostImplementationReviewAS3101UnqualifiedOpinion/6_Deloitte-Touche-LLP.pdf) ("For those matters identified as CAMs, we held discussions with audit committees and management about the draft CAMs, including how they compared to CAMs reported for other companies in the same industry.").
 Letter from The Center for Audit Quality (CAQ) to PCAOB, Interim Analysis No. 2020-01, Critical Audit Matter Requirements (June 15, 2020) (available at https://www.thecaq.org/wp-content/uploads/2020/06/caq_comment-letter_rfc_pcaob-interim-analysis-on-CAMS-Final.pdf) ("However, in many instances the topic of implementing the CAM requirements prompted audit committees and members of management to take a fresh look at their own company disclosures. This contributed to meaningful dialogue among the audit team, company management, and the audit committee about the CAM communications and account(s) or disclosures to which the CAM related."); see also Letter from PwC to PCAOB, Interim Analysis No. 2020-01, Critical Audit Matter Requirements (June 15, 2020) (available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/PostImplementationReviewAS3101UnqualifiedOpinion/14_PwC.pdf) ("Because of the possibility that CAMs might attract incremental attention to the company's disclosures, some audit committees were particularly interested in the relationship between the company's disclosures related to those matters we had identified as CAMs and how we intended to describe the CAMs in our audit report.").
 Letter from Deloitte, supra note 50 ("the topic of CAMs was often discussed at scheduled audit committee meetings and throughout the audit with management."); see also Letter from Mazars USA LLP to PCAOB, Interim Analysis No. 2020-01, Critical Audit Matter Requirements (June 15, 2020) (available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/PostImplementationReviewAS3101UnqualifiedOpinion/19_MAZARS_USA_LLP.pdf) ("Yes, several additional meetings were held with management including the "dry-run" to provide them with the sample report, provide them with additional information about our audit procedures and discuss any questions they may have had.").
 See Interim Analysis Report, supra note 12, at 5 ("More than one-third of engagement partners (39%) reported that the issuer made changes to financial statement disclosures or other corporate reporting because of CAMs. Additionally, a small number of engagement partners (2%) reported that the issuer made changes to internal controls over financial reporting because of CAMs."); id. at 7 ("Several preparers said that they compared planned company disclosures to auditor's draft CAMs, although none reported making significant changes to company disclosures because of CAMs. Preparers also told the staff that CAMs have not driven significant changes to company financial reporting processes or controls.").
 Jenna Burke, Rani Hoitash, Udi Hoitash & Xia Xiao, An Investigation of U.S. Critical Audit Matter Disclosures (June 2020) (available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3635477) ("It appears that CAM disclosures resulted in changes to the financial reporting process, and specifically the disclosures management makes in company filings, perhaps suggesting that past disclosures were inadequate. . . .We conclude that the detected changes to management's disclosures may be an indicator of improved auditor involvement in the financial reporting process, which can indirectly benefit investors.").
 Academic research examining the impact of the new reporting requirements for audit firms, including the introduction of "key audit matters," in other jurisdictions has found that they are associated "with an improvement in financial reporting quality." See Lauren C. Reid, Joseph V. Carcello, Chan Li & Terry L. Neal, Impact of Auditor Report Changes on Financial Reporting Quality and Audit Costs: Evidence from the United Kingdom (Mar. 2019) (available at https://onlinelibrary.wiley.com/doi/full/10.1111/1911-3846.12486) ("our study provides timely and relevant evidence on the costs and benefits of new auditor reporting requirements [for audit firms]. Using a balanced sample of firms, we find that the United Kingdom's new reporting regime is associated with an improvement in financial reporting quality.").
 Interim Analysis Report, supra note 12, at 4.
 Interim Analysis Report, supra note 12, at 4.
 My staff and I conducted a search of the EDGAR data base for ESG CAMs. We looked for CAMs that specifically mentioned climate change. We did not try to screen for CAMs that addressed possible changes in the price of hydrocarbon without explicitly discussing climate change. There were a few that mentioned various related terms but did not include an extensive discussion. Nonetheless, there is always the possibility that we missed one here or there. The number of ESG CAMs including a meaningful discussion of climate change is in any event quite small.
 See REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, Form 20-F, National Grid, plc, filed June 25, 2020 (available at https://www.sec.gov/Archives/edgar/data/1004315/000100431520000053/nationalgrid20f2020redacdoc.htm).
 See REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, Form 20-F, BP plc, filed Mar. 3, 2020 (available at https://www.sec.gov/Archives/edgar/data/313807/000162828020003753/a31122019bp20fdoc.htm).
 See REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, Form 20-F, Royal Dutch Shell, plc, filed Mar. 12, 2020 (available at https://www.sec.gov/ix?doc=/Archives/edgar/data/1306965/000130696520000014/royaldutchshell20-f2019.htm).
 Jeffrey S. Cramer, The Quotable Thoreau 73 (2011).
 Alan Beller, Former Director, Division of Corporation Finance, SEC, Remarks before the Rocky Mountain Securities Conference, Denver, Colorado (May 17, 2002) (available at https://www.sec.gov/news/speech/spch563.htm).
 The SEC does something like real time feedback with the comment letter process. The letters are sent to issuers upon a review of SEC filings. The letters are made public and result in increased compliance. See J. Robert Brown, Jr., Board Member, PCAOB, Grading the PCAOB: Transparency, Accountability and Investor Protection, Conference of the Council of Institutional Investors, Minneapolis, MN (Sept. 17, 2019) (available at https://pcaobus.org/News/Speech/Pages/Brown-Grading-the-PCAOB-Transparency,-Accountability-and-Investor-Protection.aspx).
 The PCAOB has committed to monitoring, evaluating and studying the impact of the CAM requirements. See Interim Analysis Report, supra note 12 ("The PCAOB will continue to monitor and evaluate the impact of the CAM requirements, including any significant unintended consequences, as auditors begin to implement the CAM requirements for audits of other public companies.").
 Staff White Paper Econometric Analysis on the Initial Implementation of CAM Requirements, PCAOB, 6 (Oct. 2020) (available at https://pcaobus.org/EconomicAndRiskAnalysis/pir/Documents/Econometric-Analysis-Initial-Implementation-CAM-Requirements.pdf) (based upon a sample of 2,220 audit reports, "about half of the audit reports (1,118 or 50.4%) contain a single CAM while about one-third include two CAMs (761 or 34.3%). Of the remaining audit reports, 257 (11.6%) include three CAMs and 72 (3.2%) include four or more CAMs. Moreover, in 12 audit reports the auditor determined that there were no CAMs. The average number of CAMs communicated is 1.7.").
 Jenna Burke, Rani Hoitash, Udi Hoitash & Xia Xiao, An Investigation of U.S. Critical Audit Matter Disclosures (June 2020) (available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3635477) ("Notably, the median of only one CAM is particularly striking, as prior studies on related non-U.S. regulation report a median of four risks of material misstatement for U.K. companies . . . and two key audit matters (KAMs) for companies in China and Hong Kong. . . Large accelerated filers are notoriously complex, and it is difficult to comprehend how the majority of issuers in our sample have only one or two particularly material and risky areas of the audit. This descriptive may suggest auditors are minimally complying with the CAM disclosure requirement.").
 For some initial observations with respect to the implementation of the CAMs requirement, see Spotlight: Critical Audit Matters, PCAOB (available at https://pcaobus.org/Documents/CAMs-Spotlight.pdf).
 PCAOB Auditing Standard 3101.17, supra note 10 ("For each matter arising from the audit of the financial statements that: a. Was communicated or required to be communicated to the audit committee; and b. Relates to accounts or disclosures that are material to the financial statements; the auditor must document whether or not the matter was determined to be a critical audit matter (i.e., involved especially challenging, subjective, or complex auditor judgment) and the basis for such determination.").
 For a discussion of the revised report, including Part 1.B, see J. Robert Brown, Jr., Board Member, PCAOB, Seeing Through the Regulatory Looking Glass: PCAOB Inspection Reports, CFA Institute's Corporate Disclosure Policy Council and Capital Markets Policy Council, Virtual (July 23, 2020) (available at https://pcaobus.org/News/Speech/Pages/Brown-Seeing-Through-Regulatory-Looking-Glass-PCAOB-Inspection-Reports.aspx).
 See J. Robert Brown, Jr., Board Member, PCAOB, Preventing Audit Extinction, Data Amplified 2019 Conference, Shanghai, China (Oct. 24, 2019 (available at https://pcaobus.org/News/Speech/Pages/Preventing-Audit-Extinction.aspx).
 Henry David Thoreau, Walden; or, Life in the Woods 352 (1854).
 Investors have already shown an interest in ESG CAMs. See Letter from The Council of Institutional Investors (CII) to PCAOB, Interim Analysis 2020-01 (June 11, 2020) (available at https://www.cii.org/files/issues_and_advocacy/correspondence/2020/June%2011%202020%20PCAOB%20comment%20letter.pdf) ("Another topic that is likely to resonate with many investors are environmental related CAMs. With the growing momentum for environmental, social, and governance themes, CAM environmental related disclosures may provide investors with a lens into an important governance dimension that also have implications for proxy voting decisions.").
 J. Robert Brown, Jr., Board Member, PCAOB, Statement Regarding the PCAOB's Revised Research and Standard-Setting Agendas: Reducing Credibility, Accountability and Confidence in the Financial Reporting Process (Oct. 13, 2020) (available at https://pcaobus.org/News/Speech/Pages/Brown-Statement-Regarding-PCAOBs-Revised-Research-Standard-Setting-Agendas.aspx).