With the SEC’s recent finalization of pioneering climate-disclosure regulations, the landscape of corporate reporting is set to undergo a significant transformation. These regulations, aimed at ensuring transparency and consistency in climate-related disclosures, require a strategic and proactive approach from corporate executives. As the phase-in period approaches, with large-accelerated filers embarking on disclosures by 2025, understanding and preparing for these changes is critical for staying ahead.
Overview
The SEC’s initiative represents not just a regulatory requirement, but a strategic opportunity for businesses to showcase their commitment to climate-related disclosures and risk management. Under the leadership of SEC Chair Gary Gensler, the rules are designed to provide investors with decision-critical information, thereby requiring that public companies focus on their climate-related risks and the expected mitigation strategies.
Summary of Disclosure Requirements
Regulation S-K: Strategic and Operational Insights
- Risk and Goal Disclosure: Highlight how climate-related risks and objectives could materially affect business operations and financial statements.
- Strategy and Business Model Impact: Describe the actual and potential impact of climate-related risks on the company’s strategy, business model, and outlook.
- Risk Mitigation and Adaptation: Detail actions taken to mitigate or adapt to material climate-related risks.
- Governance of Climate Risks: Outline board and management oversight on climate risks, including the processes for risk identification, assessment, and management.
- Financial Implications of Climate Actions: Report material expenditures and the impact on estimates and assumptions from climate-related mitigation and adaptation activities.
- GHG Emissions Reporting: For relevant filers, disclose Scope 1 and Scope 2 emissions, emphasizing the importance of assurance for material emissions data.
Regulation S-X: Financial Impact and Expenditures
- Weather and Natural Conditions Costs: Disclose costs and expenses from severe weather events and natural conditions, adhering to specified disclosure thresholds.
- Carbon Offsets and Renewable Energy Credits or Certificates (RECs): Report on expenses related to carbon offsets and renewable energy credits, especially if they are significant for achieving climate-related goals.
- Financial Planning Impact: Describe how severe weather and other natural conditions affect financial estimates, disclosed climate-related targets, or transition plans.
A Multi-disciplinary Approach to Implementation
In an era where climate will shape market dynamics, aligning SEC climate disclosure requirements with corporate strategy is not just about compliance; it’s about seizing a leadership position in sustainability. A holistic, multi-disciplinary approach, drawing on expertise from sustainability, finance, operations, legal, HR, and supply chain, is pivotal for embedding climate consciousness into every facet of your business operations.
This 5-step guide will help you outline a phased approach to meet the SEC mandates.
1. Streamline Reporting and Bridge Gaps
Evaluate your existing climate reporting procedures against the SEC’s benchmarks to identify and address discrepancies. This critical first step ensures your reporting infrastructure is robust and fully compliant.
2. Quantify and Manage Emissions with Precision
Establish clear organizational and operational scopes for GHG emissions, utilizing standardized data collection templates and controls. This foundation supports accurate emissions reporting and strategic decision-making for reduction efforts.
3. Elevate Disclosure Quality and Transparency
Collaborate with stakeholders to refine climate-related disclosure practices. Enhance the clarity, depth, and relevance of your disclosures, drawing upon TCFD and GHG Protocol standards to meet and exceed SEC expectations.
4. Governance and Oversight for Climate Integrity
Strengthen your governance model to ensure comprehensive oversight of climate-related risks and strategies. This includes defining clear management roles and improving data collection processes to enhance the reliability and efficiency of your climate reporting.
5. Assurance and Accountability
Ensure your GHG emissions data and climate disclosures are audit-ready. Engage both internal and external auditors for a thorough review of your processes and controls, guaranteeing the integrity and credibility of your disclosures.
As you navigate the complexities of the SEC’s climate disclosure mandates, remember that this is not just a compliance exercise, but a strategic business imperative. CrossCountry Consulting is your partner in aligning these new requirements with your corporate objectives, ensuring not only compliance but also a stronger competitive edge and enhanced investor confidence. Let’s redefine the future of corporate sustainability together.