As predicted, the U.S. Securities and Exchange Commission approved the long-awaited climate disclosure rule this week. The impact? Now, thousands of public companies will be required to disclose material scope 1 and 2 emissions. The disclosure law marks a significant milestone in corporate climate reporting, driving the imperative for strategic alignment and comprehensive risk management.
In this episode of The Week in Sustainability, we welcome Christopher McClure a partner and ESG services leader for Crowe LLP, a leading public accounting, consulting, and technology firm.
The evolution of the SEC disclosure law
The SEC’s proposed rule on enhancing climate disclosure for publicly traded companies faced significant feedback and commentary from the market. After receiving over 24,000 comment letters, the final ruling was approved on March 6th, with notable differences from the initial proposal.
Key requirements of the final ruling
The final ruling focuses on climate-related governance, strategy, risks, and targets, aligning with frameworks like TCFD. It includes disclosures of scope 1 and 2 emissions, transition plans, and scenario analysis, but notably excludes scope 3 emissions, a contentious point for many stakeholders.
Materiality assessment and its importance
A crucial aspect of the SEC rule is the emphasis on materiality assessment. The determination of material topics hinges on various considerations beyond financial metrics, requiring a cross-functional team to ensure accuracy and credibility.
Phase-in timeline and assurance requirements
The phased timeline of the ruling grants larger companies more time for compliance, with a transition from limited to reasonable assurance for scope 1 and 2 emissions. Despite the extended timeline, companies must integrate these obligations into their compliance strategies amidst evolving regulatory landscapes.
Implications for companies and industry trends
While the exclusion of scope 3 emissions disappointed some, companies are already engaged in reporting due to existing regulatory requirements and stakeholder demands. Climate risk is increasingly recognized as financial risk, urging companies to prioritize transparency and accountability across operations.
Preparing for the future
We advise companies to adopt a proactive approach, establishing cross-functional teams to navigate evolving reporting obligations and stakeholder expectations. Consistency, alignment, and robust data support are essential for building trust and resilience in the face of regulatory and market pressures. As the sustainability reporting landscape evolves, companies must embrace transparency, accountability, and proactive engagement with regulatory requirements.
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