Tag: Reporting on Climate Risks

GOP Resolutions Aim to Overturn SEC’s Climate Rule

Posted on by Scott Sherwood

Dual Republican House and Senate resolutions introduced this week take aim at the recent climate risk disclosure rule from the U.S. Securities and Exchange Commission (SEC). As the 2024 election season gets underway, the resolutions delineate the parties’ different views on climate policy and their clashing perspectives on the scope of agencies’ regulatory authority. (Senate and House resolutions | PoliticoPro, April 17)  

Political Differences

  • The partisan effort to overturn the SEC’s rule will not garner significant support from Democrats and the resolution is unlikely to pass the Senate. However, the resolutions have rallied Republicans to advance their message that the Biden administration’s SEC frequently steps outside the bounds of its regulatory authority. (The Hill and Bloomberg Law, April 17)
  • Banking Committee Ranking Member Tim Scott (R-SC) leads the effort in the Senate. “The SEC’s mission is to regulate our capital markets and ensure all Americans can safely share in their economic success — not to force a partisan climate agenda on American businesses,” he said in a statement.
  • Scott’s resolution has the support of 33 Republicans. Sen. Joe Manchin (D-WV) is the lone Democrat co-sponsor. (PoliticoPro, April 17).
  • Democratic support for the SEC’s rule includes Senate Banking Committee Chairman Sherrod Brown (D-OH). “I applaud the SEC for acting to address climate risks to protect workers, investors, and our economy,” Brown said after the SEC rule was released last March. (Senate Banking news release)
  • On the House side, Financial Services Committee Republicans advanced a similar resolution along a party-line vote on April 17. Committee Member Bill Huizenga (R-MI) introduced the House resolution. (Climate Wire, April 18)

Legal Pause in Effect

SEC logo and text
  • Numerous lawsuits challenging the SEC’s rule are now consolidated in federal court. The SEC agreed to stay its climate rule while litigation is pending. (Climate Wire, April 5)
  • House Financial Services Committee Chairman Patrick McHenry (R-SC) said “[t]he SEC’s stay of the rule is not enough” and that congressional action is warranted, crystallizing the political nature of the issue.

If the SEC’s rule eventually takes effect, registered companies would have to include certain climate-related disclosures in annual Form 10-Ks. Notably, the final SEC rule did not include Scope 3 disclosures, which affirmed a position strongly advocated by The Roundtable. (Roundtable Fact Sheet, March 12 and Roundtable Weekly, March 8)

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Lawsuits Mount Against SEC Climate Rules

Posted on by Scott Sherwood
The U.S. Securities and Exchange Commission (SEC) headquarters in Washington, DC.

Almost two dozen Republican-led states have sued the U.S. Securities and Exchange Commission (SEC) over its climate corporate disclosure rules released last week. (Bloomberg Law, March 12 – paywall | Roundtable Weekly, March 8)

Litigation Gauntlet

  • GOP attorneys general in 22 states allege the SEC acted beyond its authority by requiring companies to report certain GHG emissions and costs related to extreme weather.
  • The U.S. Chamber of Commerce joined the “legal salvo” against the SEC. (POLITICO, March 15).
  • An SEC spokesperson stated the agency will “vigorously defend” petitions filed in the federal appeals courts for the Fifth, Eighth, and Eleventh Circuits. (Bloomberg Law, March 12)
  • These suits will likely rely on the “major questions” doctrine, raised in a 2022 U.S. Supreme Court decision that curtailed EPA’s authority to fight climate change. The doctrine provides that a federal agency must have “clear” authority from Congress to regulate issues of “vast economic and political significance.” (E&E News ClimateWire, March 11)
  • Meanwhile, environmental groups filed their own counter-suit in the D.C. Circuit. They claim that the SEC’s rules are too “water[ed] down” and fail to provide investors with “material” information on a company’s financial exposure to climate risks. (Newsweek, March 14).
  • It will take months for the SEC to run this court gauntlet. The November elections could shape the legal outcome before the suits are resolved, depending on which party controls Congress or the White House.

RER “Fact Sheet”

The Real Estate Roundtable's March 12, 2024 Fact Sheet on "What CRE Needs to Know" about the SEC's Climate Disclosure Rules.
  • Assuming the SEC’s rules are not delayed, the largest public companies must comply with climate-related disclosures in Form 10-Ks filed during fiscal year 2025. (SEC fact sheet, March 6)
  • The Real Estate Roundtable has issued its own fact sheet summarizing “What CRE Should Know” about the SEC’s final climate disclosure rules. (RER Fact Sheet, updated March 12).

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) continues to study the new SEC regulations and plans to hold educational sessions at its June 21 meeting in Washington as part of RER’s annual meeting.

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SEC Releases Climate Disclosure Rules

Posted on by Scott Sherwood
SEC logo and text

On March 6, the U.S. Securities and Exchange Commission (SEC) released long-awaited final “Climate Disclosure Rules” that establish federal regulations for registered companies to disclose climate-related financial risks and opportunities. The Real Estate Roundtable has prepared a fact sheet summarizing “What CRE Should Know” about the new SEC rules.

Overview of the SEC Rules

  • The rules require certain registrants to report “material” financial impacts to address storms, wildfires, sea level rise, and other events attributable to climate change (SEC news release, March 6)
  • Certain climate-related expenses and costs must be quantified and disclosed in audited financial statements filed annually as part of Form 10-K.
  • The rules also expand disclosures in narrative “items” included in a 10-K, such as descriptions of “physical” and “transition” risks from extreme weather and related events.
  • The SEC’s final rules impose no requirements to report Scope 3 emissions from sources in a company’s “value chain” – following the position advocated by the Roundtable in 2022 comments. (Roundtable Weekly, June 10, 2022)
  • “The SEC’s decision to drop proposed Scope 3 reporting was the right move,” said Roundtable President and CEO, Jeff DeBoer. “It would have imposed onerous financial and paperwork burdens for commercial real estate owners and failed to produce reliable and useful emission information for investors.”
  • The Climate Disclosure Rules phase-in and ramp-up over time. The largest companies (in terms of the amount of shares held by public investors) must start complying in 2025. (RER Fact Sheet)

Impacts on CRE 

The Roundtable’s Fact Sheet on the SEC’s Climate Disclosure Rules
  • CRE registrants should become familiar with the new rules if they voluntarily set corporate “targets” to reduce emissions in their buildings or portfolios, or own assets located in cities or states with building performance mandates.
  • Companies that purchase renewable energy certificates (RECs) or carbon offsets may also be subject to SEC disclosures.
  • CRE owners and financial firms with “lifecycle” cap ex investment plans for building electrification may also be subject to new reporting.
  • The SEC’s rules do not preempt similar state requirements. For example, companies regulated by California’s climate disclosure laws passed in 2022 must satisfy those rules in addition to SEC rules. (Roundtable summary of the California legislation and Roundtable Weekly, Sept. 22)
  • The courts may ultimately decide the legality of the SEC’s actions. Institutional investors might move the market toward the SEC’s rules even if they are stalled or struck in court.

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will continue to assess the implications of the SEC’s rules and convene our members to develop industry standards and practices for compliance.

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California Passes Corporate Climate Disclosure Package; Biden Administration Releases Net-Zero Emissions Principles for Financial Institutions

Posted on by Scott Sherwood

Recent government actions amplify the increasing focus by policymakers on climate laws and guidelines—and their heightened impact on CRE. The California legislature recently passed first-of-its-kind state laws that require companies to disclose their emissions, beating to the punch anticipated federal climate reporting rules from the U.S. Securities and Exchange Commission (SEC). (Politico, Sept. 17)

Meanwhile, the Biden administration issued voluntary principles this week for asset managers, banks, insurers, and venture capital companies with goals for “net zero” emissions investments, including real estate. (Treasury news release, Sept. 19)

California’s Climate Risk Disclosure Package

  • California’s legislature passed two bills (SB 253 and SB 261) last week requiring climate-related disclosures from certain companies doing business in the state. Most notably, the Climate Corporate Data Accountability Act (SB 253) would require entities with total annual global revenues greater than $1 billion to quantify and publicly report Scopes 1, 2, and 3 emissions.
  • SB 253 is estimated to regulate around 5,400 companies. Gov. Gavin Newsom (D) pledged to sign both bills, although he may request changes when the legislature reconvenes in January. The laws could be challenged in court before they take effect over the next several years. (Wall Street Journal, Sept. 20 and New York Times, Sept 17)
  • The California legislature “leapfrog[ged]” the U.S. SEC (Bloomberg, Sept. 12), which has yet to release highly anticipated federal rules that are expected to require registered companies to report to investors on material climate-related financial risks in 10-Ks and other filings. (See RER’s 2022 comments on SEC proposal | Roundtable Weekly, March 10 and June 10, 2022)

U.S. Treasury’s Net-Zero Emissions Investment PrinciplesU.S. Treasury’s Net-Zero Emissions Investment Principles -- publication imageThe Treasury Department’s Principles for Net-Zero Financing & Investment is focused on “financial institutions’ scope 3 financed and facilitated greenhouse gas (GHG) emissions.” It urges private sector financial institutions to align their GHG reduction efforts and net-zero goals with their “portfolio companies,” “portfolio of assets,” and “client base.”

  • The document notes that clients and portfolio companies should provide to their financial institutions their own net-zero plans, including “metrics and targets” for Scopes 1, 2 and 3 emissions. Buildings and real estate assets have long been considered part of a financial institution’s Scope 3 emissions “value chain.” 
  • The set of nine principles encourage greater adoption of emerging best practices for private sector financial institutions that have made net-zero commitments, while promoting consistent and credible implementation approaches.

A Sept. 12 podcast featuring Roundtable Senior Vice President & Counsel Duane Desiderio, and Nareit’s Senior Vice President of Environmental Stewardship and Sustainability Jessica Long, discusses the imminent SEC rule and other real estate policy priorities in the energy and climate arena. (Listen to Nareit’s “Real Estate Roundtable says CRE Playing Key Role in Success of Federal Climate Programs”)

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CRE Coalition Asks EPA to Help Standardize Conflicting State, Local Building Emissions Laws

Posted on by Scott Sherwood

The Real Estate Roundtable and industry partners encouraged the U.S. Environmental Protection Agency (EPA) on Sept. 14 to enhance its set of effective, standardized, and voluntary federal tools that can assist real estate companies meet climate targets imposed by city and state laws. (Real estate coalition letter, Sept. 14)

EPA Standards to Quantify Emissions

  • The coalition endorsed EPA’s planned improvements to its free, online Portfolio Manager benchmarking tool, announced in an ENERGY STAR July 2023 policy brief. Nearly 25% of U.S. CRE space measures energy and water use, waste disposal, and GHG emissions using Portfolio Manager.  
  • Without EPA’s voluntary resources to support uniform emissions measurement, compliance with local mandates is “exceedingly difficult, impracticable, and in some cases, impossible,” the letter states.
  • “We value greatly our longstanding collaboration with the US-EPA’s ENERGY STAR program.  It is the gold standard of resources which help our industry report on energy efficiency and the financial impacts from the increase of renewable energy supplies,” said Roundtable Sustainability Policy Advisory Committee Chair, Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust), below.
SPAC Chair Tony Malkin
  • Malkin added, “Non-binding federal guidelines from the EPA’s strong and best-in-class analytical frameworks are the North Star through which local governments can inform their law-making, and this helps to bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs. The future is hard facts and data, and our industry is fortunate to have a constructive and productive relationship with the EPA that focuses on points on the board, the how to address the what.”  
  • The American Hotel & Lodging Association; Building Owners and Managers Association (BOMA) International; CRE Finance Council; ICSC; Mortgage Bankers Association; NAIOP, Commercial Real Estate Development Association; and Nareit® joined The Roundtable on the coalition letter.

Anticipated SEC Climate RulesSecurities and Exchange Commission (SEC) seal

  • The Roundtable’s call for uniform methods to calculate and report emissions anticipates overdue rules this fall from the U.S. Securities and Exchange Commission (SEC). The SEC’s rules are expected to compel registered companies to disclose in investor filings material financial impacts related to climate change. (See Roundtable Weekly, June 10, 2022 and RER comments).
  • Gensler is also scheduled to testify before the House Financial Services Committee on Sept. 19.

The Biden administration’s emphasis on climate policy will continue this fall, when it is expected to propose a uniform federal definition on the long-term concept of “zero emissions buildings.” The Roundtable’s SPAC will convene a working group to analyze the definition upon its release for public comments.

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Reports Confirm Challenges in Scope 3 Reporting

Posted on by Trey Jackson
Houston skyline

Reports released this month show the challenges companies face to quantify indirect “Scope 3” GHG emissions that emanate from an organization’s value chain. These studies support recent remarks from U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler that Scope 3 reporting is not “well-developed,” and “adjustments” could be made to the agency’s highly anticipated climate risk reporting rule. (CNBC, March 6 and Roundtable Weekly, March 10)

Reporting Categories

  • A report from environmental disclosure platform CDP examined survey responses from more than 18,700 companies. CDP found that a company’s limited influence over emissions in its supply chain, lack of data, and/or low-quality data are the biggest challenges for Scope 3 disclosures. 
    • CDP’s report noted that only 41% of responding companies reported on at least one of the 15 Scope 3 “indirect” emissions categories. In contrast, 72% of CDP-responding companies reported Scope 1 (“direct”) and/or Scope 2 (“electricity”) emissions. (ESG Today, March 15) 
    • The most commonly reported Scope 3 emission category (42%) reported by all sectors in was emissions from “business travel,” perhaps the easiest category to calculate. (CDP, Scope 3 Categories by all Sectors)

Real Estate & Scope 3

Scope 3 real estate sector percentages
  • A technical note to CDP’s report, above, provides statistics specifically on Scope 3 disclosures from building developers, owners, and REITs. According to CDP:
    • Scope 3 emissions on average contribute over 85% of a commercial real estate company’s entire footprint.
    • Embodied emissions from construction materials (steel, concrete) was the most significant Scope 3 category reported by 156 real estate companies.
    • “Downstream” emissions from tenants was the second most significant category, comprising 27% of total Scope 3 emissions and 25% of total Scope 1+2+3 emissions. 

Executives on Scope 3

Workiva-PwC report cover
  • A separate Workiva/PwC survey, above, on expected SEC disclosure requirements and ESG reporting compiles the responses of 300 executives at U.S.-based public companies.
  • Key findings from the “Change in the Climate” report include:
    • 95% of corporate executives say they are prioritizing ESG reporting more now than before the SEC’s proposed rule.
    • 36% don’t feel their company is staffed appropriately to meet the SEC’s proposed disclosure rule.
    • 60% of respondents said they would need an extra 1-3 years to estimate and report on Scope 3 emissions—after any Scopes 1 and 2 requirements take effect.
    • 61% of respondents believe the SEC rule will cost their companies at least $750K in the first year of compliance. 

Separately, Senate Majority Leader Chuck Schumer (D-NY) this week commented on a proposed House of Representatives energy package (H.R. 1), which focused on measures impacting fossil fuels, as a “non-starter” for congressional negotiations. (Politico, March 15) 

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SEC Chair Indicates Possible Scale-Back of “Scope 3” Emissions Reporting

Posted on by Trey Jackson

SEC Chair Gary GenslerU.S. Securities and Exchange Commission (SEC) Chair Gary Gensler commented on March 6 that the agency’s forthcoming rule on climate reporting may be scaled-back, including its proposal for sweeping disclosures on Scope 3 GHG emissions, according to CNBC.

Scope 3 Proposal 

  • Scope 3 refers to indirect emissions that are part of an organization’s value chain but not owned or controlled by the reporting company. The 2022 SEC proposal would require corporate issuers of securities to estimate and report Scope 3 emissions “if material” in 10-Ks and other filings. (SEC News Release, March 22, 2022)

  • Roundtable comments submitted last June called the SEC’s proposed treatment of Scope 3 disclosures a “back-door mandate” and urged the agency to drop it. (Roundtable Weekly, June 10, 2022)

  • The SEC’s final rulemaking process is ongoing. Gensler acknowledged that the agency received a record 15,000 public comments and “adjustments” to the proposed rule were likely. (Bloomberg Law, March 6; CNBC, Feb 10)

  • Some stakeholders have signaled potential litigation by questioning whether the SEC has “clear” legal authority to regulate climate matters in light of recent Supreme Court precedent. (SCOTUSblog, June 30, 2022 | Pensions & Investments, March 7, 2023)

  • Gensler told POLITICO this week that any final climate rule must be “durable” and “sustainable.” “It doesn’t protect investors … if we have a rule overturned in court,” he said.

Congress Weighs In 

U.S. Capitol
  • The SEC’s climate rule is the focus of dueling letters by members of Congress. Democrats wrote in a March 5 letter that the agency should not “soften” or “scale back” proposed climate discloures. Reports that the SEC might “curtail” Scope 3 reporting, among other matters, are “deeply concerning,” the Democrats wrote.

  • Republicans wrote to Gensler on Feb 22, stating the proposed rule exceeds the Commission’s authority. The GOP letter states, “Congress created the SEC to carry out the mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation—not to advance progressive climate policies.”

A final rule is anticipated from the SEC this spring. The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will continue to track any developments on the agency’s proposed rule and other climate-related regulatory proposals affecting CRE.

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Advisory Panel Endorses SEC Proposed Disclosure Rule

Posted on by Trey Jackson

SEC logo - image

A Securities and Exchange Commission (SEC) advisory panel on investor issues this week endorsed the agency’s proposed climate disclosure rule, including a requirement for registered companies to support Scope 3 indirect emissions “if material” to investors. (Bloomberg Law and advisory panel recommendation, Sept. 21)

Scope 3 & CRE

  • The Investor Advisory Committee’s recommendations are not binding, although the SEC could adopt final rules on corporate climate reporting requirements this fall. (BGov, Sept. 21)
  • The Real Estate Roundtable submitted comments on June 10 objecting to the Commission’s Scope 3 approach. The comments noted that real estate companies neither control nor have access to data regarding emissions from third parties in their “value chains.” (Roundtable Weekly, June 10 and June 24)
  • A joint industry letter filed on June 13 from 11 national real estate trade groups also opposed the SEC’s proposed approach, emphasizing that corporate disclosures on indirect Scope 3 emissions should be voluntary.

SEC Authority & EPA Funding

EPA entrance building

  • Litigation is expected to challenge any final Commission regulation—especially in light of a recent Supreme Court decision in West Virginia v. EPA that questioned whether the SEC has “clear” authority from Congress to regulate climate matters.
  • House Financial Services Committee Ranking Member Patrick McHenry (R-NC) and other Republican committee members wrote to SEC Chair Gary Gensler this week to request the SEC provide a list of all pending and upcoming rulemakings with the specific Congressional authority supporting each action. (Policymakers’ letter, Sept. 20)
  • Apart from the SEC, the Environmental Protection Agency (EPA) received a modest sum from Congress ($5 million) under the recently enacted Inflation Reduction Act (IRA) to help standardize voluntary corporate commitments to reduce greenhouse gas (GHG) emissions.
  • The new EPA funds are not “meant to create a parallel program … in case the SEC rule is scrubbed,” but will rather be used for climate models and software to hold companies “accountable” for the climate commitments they are already making. (BGov, Sept 21)
  • EPA backed the SEC’s climate disclosure proposal in a recent letter— stating the Commission has “broad authority to promulgate disclosure requirements that are ‘necessary or appropriate … for the protection of investors.’”

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will remain engaged with policy makers on climate risk disclosure rules that affect commercial real estate.

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Senators Challenge SEC Chair on Proposed Climate Rule

Posted on by Trey Jackson

SEC Chair Gary Gensler

Senate Banking Committee members challenged Securities and Exchange Commission (SEC) Chair Gary Gensler, above, during an oversight hearing yesterday about the agency’s proposed climate disclosure rule. (CQ, Sept. 15 and Yahoo Finance, Sept. 16)

SEC Authority Questioned

  • Committee Ranking Member Pat Toomey (R-PA) opened the hearing by stating, “The SEC is wading into controversial public policy debates that are far outside its mission and its expertise.”
  • Toomey pressed Gensler about a June Supreme Court ruling that executive branch agencies “cannot use novel interpretations of existing law to pretend they have legal authority to support sweeping policy changes, including on climate change, that Congress never intended.” (Toomey Opening Statement)
  • Toomey asked, “In light of the EPA v. West Virginia case, have you given any consideration to rescinding that rulemaking?” Gensler replied that the Commission is “seriously” considering the high Court ruling and 14,000-plus public comments to assess its legal authorities to ensure that registered companies provide material, decision-useful information about climate risks to investors. (SEC docket with list of organizations and individual comments)
  • Senator Jon Tester (D-MT) explained that the SEC’s proposal would require farms and other small businesses to estimate and disclose carbon emissions because they sell products and services to public companies. Senators Mike Rounds (R-SD) and Steve Daines (R-MT) shared Tester’s concerns (CQ, Sept. 15)

A CRE Priority

SEC logo - image

  • The SEC’s climate proposal, if finalized, would require all SEC registrants to quantify direct GHG emissions (“Scope 1”) and emissions attributable to electricity purchases (“Scope 2”) through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
  • The SEC also proposed that a company would need to report on “Scope 3” indirect emissions if they are “material” to investors. In June 10 comments, The Roundtable objected to the Commission’s proposed Scope 3 approach because real estate companies neither control nor have access to data regarding emissions from third parties in their “value chains.” (Roundtable Weekly, June 10 and June 24)
  • A joint letter filed on June 13 from 11 national real estate industry trade groups echoed the issues raised by The Roundtable in its earlier comments.

The SEC is expected to issue a final climate reporting disclosure rule sometime this fall. If the Commission votes to regulate Scope 3 emissions, the recent SCOTUS decision in West Virginia v. EPA is likely to spark litigation, raising questions as to whether the SEC has authority from Congress to regulate climate disclosures and emissions.

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More than 10,000 Stakeholders—Including Members of Congress—Weigh in on SEC Proposed Climate Rule

Posted on by Trey Jackson

SEC Climate Disclosure Comments Reference page

Congressional lawmakers recently submitted comments to the U.S. Securities and Exchange Commission (SEC) regarding its proposed rule that would require all registered companies to disclose material financial risks related to climate change. Overall, the SEC has received about 10,000 responses on the climate reporting proposal. (AP, June 17, Wall Street Journal, June 21 and SEC docket with list of organizations and individual comments) 

The Real Estate Roundtable submitted its comments to the SEC on June 10. (Roundtable Weekly, June 10) 

Views from Congress, State AGs 

  • More than 130 House Republicans wrote to SEC Chair Gary Gensler on June 15, asking him to rescind the climate disclosure proposal. “It is Congress’ job to set our environmental policy, not the job of unelected regulators,” according to the House letter. They have also called for a hearing on the SEC’s proposal. (E&E News, May 10)
  • A nearly equal number of House Democrats countered in their own letter, urging the SEC “to finalize the rule as quickly as possible.”
  • Over in the Senate, Republicans expressed their opposition in an April 5 letter.
  • Meanwhile, various Democratic Senators submitted several separate comments on June 17. One of their letters maintains that the proposal does not go far enough and should include a specific quantitative threshold for mandatory disclosures of Scope 3 emissions.
  • State Attorneys General have similarly expressed dueling opinions. (Democratic State AGs and Republican State AGs)  

CRE Response 

SEC screens

The Biden administration is expected to push forward with a final rule that could be issued later this year.

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