US SEC’s Climate Rule Verdict: Key Updates Released

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In 2022, the US Securities and Exchange Commission (SEC) released a new Climate-Related Disclosure Rule proposal for public companies to begin reporting their carbon emissions alongside their financial results. These rules are a response to investors’ increasing demands for comparable, reliable and consistent data and insights about the financial impact of climate-related risks on a company.

This is part of a global movement towards standardizing sustainability reporting. It aims to make corporate sustainability reporting more common, consistent, and standardized like financial accounting and reporting, similar to the EU Corporate Sustainability Reporting Directive (CSRD) in Europe.

After two years, the SEC officially voted on the proposed rules on March 6th 2024. This verdict is considerably toned down, compared to what was initially proposed. Notably, Scope 3 reporting mandates have been removed from the final rulings. Large public companies would also now only need to report on Scope 1 and 2 emissions if they have a material impact on financial performance.

Key Highlights of SEC’s Proposed Climate Rule

  • Disclosure of climate-related risks that have material impact on a company’s strategy and financial performance. This means that those emissions that companies consider as ’immaterial” to investors will not need to be reported on.
  • Any climate-related targets or goals (if existing) – what the plans are for achieving those goals and the progress
  • Activities taken to mitigate or adapt to a material climate-related risk – transition plans, scenario analysis or internal carbon prices.
  • Information about a company’s governance structures and oversight processes related to climate risk management (i.e. roles and responsibilities of board members, management teams, and internal committees).
  • Expenditures resulting from potential severe weather events – capitalized costs, expenses, charges and losses
  • Alignment with ESG frameworks, such as the Task Force on Climate-Related Financial Disclosures (TCFD) and Greenhouse Gas (GHG) Protocol
  • Only large publicly traded companies are impacted by required Scope 1 and 2 emissions disclosure – large accelerated filers and accelerated filters
  • Assurance for GHG emissions for accelerated and large accelerated filers, and an inline XBRL™ tagging requirement

Cority’s Position: Organizations Should Still Measure Scope 3 Emissions

While the SEC ruled that measuring Scope 3 emissions was not mandatory, companies should be careful not to dismiss this altogether. Scope 3 emissions – those indirect emissions from your value chain – often account for most of an organization’s total emissions, which is why it is critical to measure this category and find opportunities for reduction.

Reducing these emissions can mitigate climate change impact and increase a company’s competitiveness in the market, reduce cost & risk, and improve brand reputation. Plus, getting a full view into your value chain can help provide a holistic overview of your business operations and opportunities for reporting on other mandatory components such as material climate risks, targets and goals.

Many global regulations are also still looking into Scope 3 emissions reporting. Beginning in 2024, EU-operating entities (approx. 49,000 companies) will be required to report environmental and social impacts under CSRD & ESRS and a large component of this is tracking and reporting on Scope 3 emissions. California has also released new legislation that requires companies doing business in the state to report on Scope 3 emissions.

How Cority Can Support

  • Manage complex data: Our award-winning technology solutions support in helping companies collect, analyze and report relevant data in a standardized and comparable manner. Reliably measure and report on all Scope 3 categories within operations and invested companies through one set of tools.
  • Align with frameworks: Cority’s Sustainability Cloud solutions allows you to collect data and report to multiple global ESG and sustainability frameworks, including Task Force on Climate-Related Financial Disclosures (TCFD) and Greenhouse Gas (GHG) Protocol, with ease and confidence.
  • Manage risk: Improve your organization’s capacity to collect, analyze and report on climate-related data. Create an enhanced data governance process with Cority’s automated tools and integrate climate considerations into existing risk management and reporting frameworks.
  • Talk to the professionals: Cority’s global ESG Advisory Services of 70+ consultants offer expertise in areas of data management, strategy & transformation, and compliance. Work with our team to assess the implications of the new regulations for your organization, conduct materiality assessments & scenario analysis, receive guidance on compliance strategies and more. Keep up to date with climate disclosure regulations and the latest industry trends, peer practices, and emerging standards.