SEC Climate Risk Disclosure: What Your Company Should Do Next
- SEC has mandated climate risk disclosure for publicly traded U.S. companies.
- Companies must report emissions, risks, mitigation plans, board oversight.
- To comply with the rules, they would need robust decarbonization strategies, supplier assessments and progress tracking.
March 27, 2024 | Risk Management
It’s official. Publicly traded companies in the United States will now have to disclose key climate-related risks in their filings at the Securities and Exchange Commission (SEC).
The new rules come two years after the regulatory body proposed the changes and considered more than 24,000 comment letters.
These rules will give investors consistent, comparable, and decision-useful information, and issuers with clear reporting requirements, according to SEC Chair Gary Gensler.
The rules are set to become effective 60 days following publication of the adopting release in the Federal Register, and compliance dates for the rules will be phased in for all registrants, with the compliance date dependent on the registrant’s filer status.
However, the rules have been challenged in court. A Fifth U.S. Circuit Court of Appeals has temporarily halted the climate-disclosure rules.
What This Means for Companies
1. Listed business in the U.S. will need to provide information about:
- Financial climate-related risks and disclosure of the financial statement effects of severe weather events and other natural conditions including, for example, costs and losses.
- Activities to mitigate or adapt to such risks. This includes the use, if any, of transition plans, scenario analysis, or internal carbon prices.
- The board’s oversight of climate-related risks and management’s role in managing the risks.
- Climate-related targets or goals material to the business, results of operations, or financial condition
2. Disclosure of scope 1 and/or scope 2 greenhouse gas (GHG) emissions on a phased-in basis by larger organizations when those emissions are material.
3. The rules do not cover scope 3 (greenhouse gas emissions coming from a company’s supply chain operations) reporting even though it was part of SEC’s draft proposal. It was removed from the final rule because a large number of comments the SEC received expressed concerns about the cost of compliance, as well as the consistency and reliability of scope 3 data. However, Germany, France and the European Union have their supply chain emission reporting rules and companies operating in these regions will need to track and report on scope 3.
What Companies Should Do Now
For companies yet to start, the first step is to acquire the necessary tools and insights to measure and reduce climate-related risks.
They should:
- Develop robust decarbonization strategies
- Identify and manage supplier ESG risks
- Set ESG targets and track progress over time
These can be achieved by correlating ESG data with their spending patterns, allowing for more informed decisions. They can also integrate third-party ESG data for a 360-degree view of supplier relationships and model emissions abatement scenarios to shape their decarbonization strategy. Finally, they can also enable smooth project workflows with status updates and cross-functional transparency.
The goal is also to create transparency for their external compliance objectives and generate reports that align with leading ESG reporting frameworks and certifications.
