Climate change risk information – SEC proposals to end voluntary disclosure
Ryan Lynch, National Practice Director, Sustainability, BSI, looks at the likely effect of the US SEC’s proposed rule changes for organizations reporting climate-related risks and their potential impact.
Against a backdrop of the UN Intergovernmental Panel on Climate Change (IPCC) 2030 climate targets of at least a 45% reduction in greenhouse gas (GHG) emissions and an aim of achieving net zero GHG emissions by 2050.
The US SEC took a historic step forward in 2022 with proposed amendments to climate disclosure regulations.
The new reporting rules, projected to be finalized and implemented towards the end of 2023, are a clear indication that the SEC believes that voluntary disclosure is not enough to meet IPCC goals.
Meeting investor needs
Public organizations are expected to voluntarily disclose climate change risk impacts; however, with no defined disclose parameters this leads to uneven information quality.
The SEC is looking for greater transparency, and the new regulations seek to tackle this and give investors enhanced, and standardised, information on which to make better informed investment decisions. Announcing the proposed changes, SEC Chair Gary Gensler commented on the requirement for greater transparency:
"Today’s proposal, if adopted, would provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers…… Today’s proposal thus is driven by the needs of investors and issuers.
What does this mean for your organization? When this ruling becomes a requirement, publicly traded domestic and foreign organizations doing business in the U.S. will need to:
- Collect and report information around Scope 1, Scope 2, and in many cases, Scope 3 GHG emissions.
- Provide details on current carbon emission reduction goals.
- Disclose accounting of climate-related risks and expenditures.
Additional information will be required meaning climate-related information will be needed in registration statements and annual reports including:
- How identified climate risks might impact business and financial performance.
- The actual or likely impact on current and future business strategy from climate risks.
- How climate-related risks will be managed, and the relevant processes involved.
- GHG emissions, which for certain organizations, would be subject to assurance.
- Certain climate-related financial statement metrics and related disclosures in a note to audited financial statements.
- Information about climate-related targets, goals, and transition plans.
Engagement of the private sector
Although the regulations won’t directly apply to private organizations, there is the potential for a trickle-down effect.
For example, if your customers are publicly traded, they might start asking for climate-related information about your practices and products to include in their own reporting.
It’s easy to see how every organization in every sector and country could be affected by these regulations. Organizations can also expect these regulations to be treated as seriously as any other regulatory requirements.
Navigating the requirements
To successfully navigate through these proposed climate-related requirements, consider your answers to these questions:
- What are the risks to my organization from climate change?
- What can we do to mitigate these risks?
- What are my Scope 1, Scope 2, and Scope 3 GHG emissions?
- What is my plan to meet previously stated goals?
Meeting the new regulations is going to place considerable demands on many organizations – the ISO Net Zero guidelines will help plot a course through all available options. The Guidelines draws on the existing landscape of major net zero standards and initiatives to harmonise best practice in one place and can support your organization to create or enhance your net zero transition plan in line with global standards, including how to meet emerging regulation.
Standardization of reporting and greater detail in relation to climate risk management may well become the norm. Your organization can stay ahead of the requirements with strategic partnerships, attention, and planning. Our experts can support this process through climate risk assessments, reporting in alignment with the Task Force for Climate-related Financial Disclosures (TCFD), CDP, and regulatory requirements, as well as climate adaptation and mitigation strategies.