Tackling Decarbonization: SEC Throws a Flag at Current Climate-Related Reporting Practices
Thought Leadership: Ryan Lynch, National Practice Director, Sustainability
On March 21, 2022, the Securities and Exchange Commission (SEC) took a historic step forward with proposed amendments to climate disclosure regulations. The new reporting rules are a direct indication that current voluntary disclosures in the U.S. are not enough to meet the UN Intergovernmental Panel on Climate Change (IPCC) 2030 goal of at least a 45% reduction in greenhouse gas (GHG) emissions and achieve net zero GHG emissions by 2050.
The new regulations reflect an understanding that investors are growing increasingly concerned about the potential impacts of climate-related risks to businesses and are asking for more information to make better-informed investment decisions. The amendments will enhance and standardize climate-risk impact reporting and disclosures to offer transparency and better address investor needs.
Once approved, the new regulations are scheduled to take effect for fiscal year (FY) 2023. Large companies will begin disclosing their Scope 1 and Scope 2 emissions at this point and will have until FY 2024/2025 to report Scope 3 emissions where deemed material by investors.
This deadline is not that far away. Companies who are not accounting and reporting their greenhouse gas emissions have a great deal of work to do in a very short amount of time.
What does this mean for your organization? When this pending ruling becomes a requirement, publicly traded domestic and foreign companies doing business in the U.S. will need to:
- Collect and report information around Scope 1, Scope 2, and in many cases, Scope 3 emissions.
- Provide details on current carbon emission reduction goals.
- Disclose accounting of climate-related risks and expenditures.
In addition, these companies will be required to include such climate-related information in registration statements and annual reports like:
- Climate risk and actual or likely impact on current and future business strategy and outlook.
- Governance of climate-related risks and relevant risk management processes.
- GHG emissions, which for certain organizations, would be subject to assurance.
- Financial statement metrics and related disclosure notes.
- Information about climate-related targets, goals, and transition plans.
Expect these regulations to be treated as seriously as all other SEC requirements, meaning the repercussions associated with false statements regarding climate-related regulations could be met with hefty fines.
And while these regulations don’t directly apply to private companies, there is going to be a trickle-down effect. For instance, if your customers are publicly traded, they are likely to start asking for climate-related information about your practices and products to include in their own reporting. Every company in every industry is going to be impacted by these regulations.
To successfully navigate through these new climate-related requirements, organizations need to continually ask themselves these questions:
- What are the risks to my business from climate change?
- What can we do to mitigate these risks?
- What are my Scope 1, Scope 2, and Scope 3 emissions?
- What is my plan to meet previously stated goals?
Meeting the new regulations is going to be a hefty lift for many companies and is not something to be ignored. Follow our Tackling Decarbonization series for more insights one climate-risk and carbon-reduction related issues.
