Change doesn’t come through those who wait

David Willans, Sustainability Director at Bladonmore, reviews the factors driving sustainability reporting while we await the SEC’s latest rules.

The US Securities and Exchange Commission (SEC) is well overdue the release of its final decision on climate disclosure rules, but that’s not stopped the wheels of change from grinding onwards.

Although the initial version of the SEC rules came out in March 2022, the final rules have not yet appeared. The news from insiders has Scope 3 emissions (those in a company’s supply chain and from the use of its products and services) as the main sticking point causing the blockage.

The SEC had proposed Scope 3 emissions become mandatory, but the US Chamber of Commerce and some Republican attorneys are threatening litigation to prevent its inclusion in the final rules.

Whether the rules become watered down or not, the impending arrival of new disclosures has been described as ‘a sea change in climate reporting obligations.’ US companies will almost certainly have to not only provide climate disclosures, but also provide assurances that these disclosures are justifiable.

Even with the slow movement of change at the SEC, movement is still happening elsewhere to push public companies to be more forthcoming about their greenhouse gas emissions and other climate issues.

Advancing the case

During the long wait for news from inside the SEC, state lawmakers, institutional investors, foreign governments and advocacy groups have dramatically advanced the case for providing more robust climate disclosures.

One example, in September, saw the California Governor, Gavin Newsom, sign two bills designed to force public companies doing business there to disclose their greenhouse gas emissions and the financial impact of climate-related events.

Under SB-261, large companies will have to report twice a year on the financial risks they face because of climate-related factors from high temperatures to wildfires and drought. Meanwhile, under the Climate Corporate Data Accountability Act, SB-253, over 5,000 U.S. companies earning over $1 bn annually and doing business in California will each year report their global emissions of carbon dioxide and other greenhouse gases.

Although both California bills are slated to come into effect in 2026, Governor Newsom has publicly expressed doubts that they will be enacted on time. That said, both measures are getting attention and seem to indicate that change is coming.

Other US companies are being forced to disclose climate-related activities because of the EU’s Corporate Sustainability Reporting Directive (CSRD), which came into effect in January 2022. The CSRD affects US companies with EU subsidiaries that meet certain criteria. Those subject to the CSRD are required not only to report on a wide spectrum of sustainability topics within their own operations, but they must also report on activities from direct and indirect relationships up and down the supply chain.

Investors want more

Large institutional investors are also adding their voices to the calls for more detailed climate disclosures.

A 2023 survey of 439 institutional investors found that 79% consider climate-risk disclosures to be at least as important as financial disclosures (with almost one-third considering them more important). In addition, 73% believe that standardised and mandatory climate-risk reporting is necessary. BlackRock has been particularly vocal in pushing these points.

Finally, standardised, but voluntary, reporting initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB) are moving the needle on how public companies disclose about sustainability and the environment.

Start now

While the SEC could announce final climate-disclosure rules at any time, most savvy IROs and sustainability officers at public companies in the US are preparing now. Here are some steps to take:

  • Identify leaders to own climate disclosure
    Experts suggest that responsibility should reside high on the org chart, preferably within the C-suite. Leaders will be responsible for making sure that there’s an entire reporting structure reaching down into all divisions that could possibly be affected by more detailed climate disclosures.
  • Inventory GHG emissions
    Calculating one’s own GHG emissions is an important first step, and it takes time. Scope 3 is still an evolving field. If your company has yet to do this, now is the moment to begin collecting data for future calculations.
  • Enhance board training
    Many board members need more education and training about ESG issues to make sound decisions on climate disclosure and strategic decisions relevant to sustainability.
  • Evaluate which climate risks are material
    Thinking about materiality for climate-related risks is different than for financial risks. Companies should try to get their arms around how climate risks can be measured, disclosed, and managed now and in the more demanding environment to come.

If you’re looking for help with your sustainability reporting, get in touch.


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