The proposed SEC climate disclosure rule, announced last week, will do two things for certain:
1. Provide consistent guidance to companies on what to report and how, including a minimum level of climate-related goals and reporting, and;
2. Provide comparable data to shareholders and analysts.
Comparable climate risk and Greenhouse Gas Emissions (GHGe) data have been missing from otherwise ambitious corporate commitments.
For smaller companies, the rule won’t directly affect them, but non-disclosure may hurt them in the court of public opinion, and institutional buyers of their services will certainly be calling on them for data.
We are still years away from being able to compare whose plans are solid, and whose plans are lackluster. This is a golden opportunity for companies to evaluate where they will stack up and set up internal mechanisms to be best of class when their data are actually reported. (1)
Companies will have to detail the impact of weather-related risks on their bottom line, and which properties and operations are subject to those risks. They will also have to disclose “transition” risks, such as;
How easily might a company adapt to a less-carbon-intensive economy, or insulate its business from physical risks?
The proposed rule makes phased-in climate disclosures mandatory, including Scope 1 and 2 GHGe for all companies, and material Scope 3 GHGe for the biggest corporations. (2)
Companies will have to provide data about any climate goals adopted, their methodologies, deadlines for achieving them, and how goals will be met including if they use carbon offsets or renewable energy certificates.
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But even if the new SEC disclosure rule is adopted, as expected, it is only a first step. It doesn’t prohibit emissions or set limits, nor does it require GHGe reductions from companies. It doesn’t require disclosure of social or governance goals. The rule simply ensures the reporting of climate progress.
"As many have said, sunlight is a great disinfectant. It’s hard to imagine that the new climate transparency required by the SEC won’t make a big difference in getting laggard publicly traded companies to act, and to provide a new bar for those already taking steps."
Generating a true Race to the Top may be the best impact of the new rule.
(1) The announcement ushered in a 60-day period of public comment, which will culminate in a final version, expected in December. The largest public companies would start reporting in 2024, and the smallest in 2026. In other words, Unlike directives, and other policy guidance from the EPA or other Federal agencies, the SEC is quasi-independent, so their rules are less susceptible to change with the political winds. This guidance is here to stay.
(2) Scope 1 refers to a company’s direct emissions from its own operations. Scope 2 are indirect emissions, such as from the electricity a company purchases. Scope 3 emissions are the indirect emissions from all other business activities—for example, emissions associated with suppliers and the emissions created by a vendor service provider.) Many environmentalists object to reporting Scope 3 emissions, since they have the potential of overstating action and success, and double counting since the service providers are reporting their own emissions.
Where to begin? We're happy to support you with Sustainability Simplified©.
Helene York is an environmental and sustainability supply chain expert, adding her talents in strategic sourcing on a global level to 4xi's capabilities.
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