Companies Waiting on the SEC to Mandate Climate Disclosures May Be Too Late to Catch Up
Many companies will need to disclose emissions to another regulatory body well before the SEC climate rule goes into effect, making it essential to advance climate reporting readiness right now.
The Securities and Exchange Commission (SEC) still hasn’t released its final climate rule. But other regulatory bodies aren’t waiting to put their own rules into effect, and many of these new climate-related reporting requirements have fast-approaching deadlines. Indeed, the SEC may now be one of the last major regulatory bodies to require climate-related disclosures because of ongoing delays to the implementation timeline.
That means CEOs and CFOs can no longer afford to wait for the SEC to take action before they make their own climate reporting progress. Those that do may end up failing to comply with other applicable rules, and they will risk spending significantly more money in the long run to fast track their compliance journey.
New climate reporting rules are even more stringent than the forthcoming SEC requirements
Since March 2022 when the SEC released its proposed climate disclosure rule, several other prominent pieces of legislation have emerged, surpassing emissions disclosure regulations outlined in the SEC’s rule and introducing climate reporting and limited assurance deadlines looming as early as Q1 2026 for many private and public companies. These rules include the California Climate Accountability Package, European Union (EU) Corporate Sustainability Reporting Directive (CSRD), and the United Kingdom (UK) Streamlined Energy and Carbon Reporting (SECR).
While 2026 is still a couple of years away, companies that do business in California and/or have an international presence in European jurisdictions face an increasingly complex web of climate reporting regulations that may take extra time to untangle. This relates especially to scope 3 emissions—an issue that lies at the heart of the SEC rule delay, according to public commentary and recent news stories.
Ultimately, the new rules will require many US companies to calculate and report scope 3 emissions regardless of what the SEC climate rule ultimately will or will not mandate.
Think in years, not months
Depending on the size of the company and complexity of the value chain, meeting the technical and assurance requirements for climate-related disclosures could end up taking well over a year, particularly for companies that have limited current reporting and internal infrastructure around data collection and assessment of climate risks. Most companies need to factor in additional time to address critical elements of climate reporting readiness including developing internal resources to support data collection, establishing and documenting processes, and setting up data systems to allow for auditing of the data.
Do the math, and it’s clear that the grace period for delaying progress is long over.
Make a climate-reporting readiness game plan for 2024
Taking the following key steps going into 2024 will ensure companies are making adequate progress and staying on track to meet already-established climate reporting deadlines as well as those still to come.
1. Establish oversight structures around greenhouse gas (GHG) emissions data collection and climate risk management
GHG emissions require facility level data. Climate risk management often sits within an enterprise risk management function. Assurance and quality control usually involve internal audit. Finally, reporting almost always requires corporate-level engagement. All these departments and their people will need to work closely with each other, so establishing oversight of data and processes will be essential to ensure collaboration and accountability and keep the work on track.
2. Take stock of data sources for scopes 1 and 2 emissions, and work to identify reporting gaps
Data for calculating scopes 1 and 2 emissions includes direct and indirect energy use at facilities where the company operates. These types of data may come from utility bills or sometimes from purchase agreements for certain fuels and gases. Gathering what is available and understanding where the company may need to dig deeper for the required information is best done sooner rather than later.
3. Consider the need for documenting data collection and calculation processes and establishing internal controls
Creating annual GHG inventories requires creating an effective and efficient control environment. For many companies, this work will entail building out and documenting the procedures necessary for identifying data sources and tracking the flow of GHG data from emissions sources through the calculation process. This can be a complex and time-consuming process. So, again, it’s best not to put it off any longer.
4. Map the value chain and prioritize material scope 3 emissions categories
Scope 3 emissions represent one of the most daunting components of expected climate-related regulations. One great way to start understanding scope 3 emissions is to create a value chain map, or a visual representation of the company’s value chain from raw materials to the end-of-life of products or services. Such a map can help companies more accurately establish which scope 3 categories are likely not applicable and which are likely to be most material.
5. Understand the company’s current alignment with climate reporting frameworks and climate risk management best practices
Upcoming regulations are universally focused on the Task Force on Climate-related Financial Disclosures (TCFD) framework to some degree or another. As part of the TCFD, companies must assess and disclose climate-related risks and opportunities as well as how the management of those risks is included in the company’s overall business strategy. Developing these qualitative disclosures can take just as much time and effort as quantitative calculations, so it’s a good idea for management teams to start discussing and documenting the company’s perspective as well as to consider how industry peers are addressing these requirements and where their own efforts may need some finessing.
The SEC may be delayed, but companies can’t afford to fall further behind
The much-anticipated SEC climate disclosure rule may have been first to put climate reporting regulations on companies’ radars. But it won’t be the first deadline many companies will need to meet. For most organizations, the time to start down the climate reporting readiness path is right now, regardless of how long the SEC takes to finalize its rule.
Need help accelerating your climate-reporting journey? Our team can assist with assessing and prioritizing the reporting frameworks that make the most sense for your organization and can provide expert advice and support during every phase of the ESG disclosure and reporting process. Reach out today and see how a trusted partner can help you make up ground and even get ahead of the reporting requirements on the horizon.
Climate reporting requirements are coming, and CFOs need to be prepared
CEOs and CFOs cannot afford to delay climate reporting while putting together their 2024 reporting strategy. To meet all the climate reporting requirements coming down the pike from various groups and organizations, companies need to plan now for internal training, budget, and oversight.