The U.S. Securities and Exchange Commission (SEC), which first proposed its climate-related disclosure rule in March 2022, has recently set April 2023 as its final release date. Due to a growing concern around climate-related risks to businesses, investors have been seeking more consistent, comparable and reliable information for investment decisions. Whether or not the SEC mandates the inclusion of climate-related information in its financial filings, the message is clear – the demand for climate action and transparency is here to stay.
Proposed rule
If finalized, registrants will be required to provide quantitative and qualitative climate disclosures in registration statements and annual reports. At a high level, the 490-page SEC proposal recommends disclosures regarding:
- Material climate-related risks and opportunities
- Climate-related impacts on financial metrics and financial estimates
- Climate-related effects on the company’s strategy, business model and outlook
- Scope 1, Scope 2 and Scope 3 (if material) greenhouse gas (GHG) emissions
- Governance of climate-related risks and risk-management processes
- Climate-related targets, activities and progress updates
- Description of the company’s transition plan
Access the SEC’s Enhancement and Standardization of Climate-Related Disclosures Fact Sheet for a more detailed summary of the proposed rules.
Compliance dates
The proposal includes a phase-in period in which compliance dates depend on the company’s filing status, as shown in the table below.
Preparation
While the phase-in period gives companies time to get everything in order, preparation may be time-consuming and will vary depending on factors, such as where your company is in its environmental, social and governance (ESG) journey, the level of awareness across functions and whether you have people on your team dedicated specifically to ESG-related matters. For companies early in this process, preparation will likely involve the following steps:
- Materiality. Determine which climate-related risks and opportunities are material to your company. Engage and educate decision makers who will be involved in implementing your organization’s climate strategies and reporting.
- Governance. Identify a governance strategy for climate-related oversight.
- Data collection and strategy development. Collect data, including GHG emissions, and set targets and strategies.
- Internal controls. Establish or enhance controls over climate-related data in preparation for assurance-ready disclosures. Document process flows and control matrices.
- Reporting. Integrate ESG into your company’s reporting system architecture and consider third-party assurance.
If your company is just beginning its conversations around climate, then it’s advisable to approach this work proactively. BPM’s team can support you in identifying material risks and opportunities, crafting strategies aligned with your needs and resources, calculating GHG emissions, establishing internal controls, and preparing audit-ready data and reports.
