The S.E.C. is voting on a new, groundbreaking rule to require publicly traded companies to disclose emissions data. This consideration means we’re moving into a world where climate responsibility is a requirement, and companies will need to be prepared for compliance whether they're public, or planning for an IPO in the next few years.
Why are new requirements being considered?
The reality is companies have to take responsibility for their role in the climate situation, and in order to reach net zero by 2050, they have to start measuring their outputs.
Most recently, businesses have been responding to customer and consumer demands around sustainability, but because environmental impact disclosures are mostly voluntary, companies have the freedom to choose what information to report and how to publish that information. But, we’re in the midst of a sustainability transition, where climate disclosures are no longer a nice-to-have. Monday’s vote by the S.E.C. will solidify movement towards more transparency.
What are the current reporting standards?
Currently, there are a number of different reporting guidelines, but the US is behind other areas of the world such as the EU where environmental reporting is already standardized. Within the US, California is more progressive in its disclosures requirements than other states. But this move by the S.E.C. indicates that the country is getting more serious about taking action.
There are a variety of reporting standards out there, including the disclosure framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) that highlights climate-related risks investors might face. This framework, built around governance, strategy, risk management, and metrics and targets, now acts as a disclosure program for many financial institutions.
We will be eager to see which path the S.E.C. follows if they vote in favor of reporting standards, but the most likely scenario is that they will follow the TCFD guidelines. With this move, it will be interesting to see if other reporting requirements around ESG are established in the near future.
What does this mean for your business?
Many companies aren’t prepared for this and will need guidance on what to do. Disclosing climate-related information will require more work and possibly additional resources.
Regardless of the disclosure framework selected or created by the S.E.C., all companies – publicly traded or not – need to establish a baseline. Luckily, carbon accounting will remain generally the same, so businesses can get a head start on calculating their carbon footprint. A comprehensive baseline includes accounting for scope 1, 2, and 3 emissions, and will allow businesses to identify their largest areas of impact and create reduction strategies.
Green Places currently works with public and non-public companies and serves as the platform of record for all climate-related initiatives. Carbon footprints are calculated on an annual basis, emissions reduction is tracked, and reports are generated to document climate action. Our clients will be well positioned and ahead of the game no matter what decision is made next week.
A sustainability plan is essentially a roadmap to help companies take climate action and reduce their overall carbon emissions.