End of March the US Securities and Exchange Commission (SEC) released its proposed rules to enhance and standardize climate-related disclosures for publicly traded companies. The proposed regulations go hand in hand with the increasing importance of climate-related issues on the capital markets thus rising transparency requirements. In this blog post, we will give you a brief overview of what you can expect.
„Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions.“
SEC Chair Gary Gensler
The proposed disclosure requirements are based on existing frameworks and standards such as the TCFD or the GHG Protocol. Companies already using these standards can therefore comply with the new requirements without major effort.
The proposal requires companies to disclose, among other things, the following information on climate-related risks:
- Oversight and governance of climate-related risks and relevant risk management processes.
- How any climate-related risks have had or are likely to have a material impact on the business and consolidated financial statements.
- How any identified climate-related risks have affected or are likely to affect the business’s strategy, business model, and outlook.
- The impact of climate-related events (severe weather events and other natural conditions) and transition activities.
Besides information on climate-related risks, the proposal requires companies to disclose their greenhouse gas emissions. In addition to (attested) Scope 1 and 2 emissions, this includes Scope 3 emissions if they are material or the company has set a reduction target that includes its Scope 3 emissions. As Scope 3 emissions make up a large part of the corporate carbon footprint in most industries, this will be of relevance to many companies. Climate-related targets and the corresponding transition plans should also be disclosed. In this context, it should also be made transparent what role carbon offsets are to play in achieving the targets in order to prevent greenwashing.
The comment period for the proposed rules is currently underway. Implementation is expected to take place by the end of the year. The precise timeline and requirements for companies depend on their size and status and can be checked in the SEC’s fact sheet.
Be prepared for new regulations
The pressure on all climate-related issues is increasing, and no longer stems solemnly from investors and customers. Legislators are also tackling the issue – the SEC’s proposed rules are just one example, along with the CSRD in the EU. As DFGE, we are happy to provide you with the support you need to be prepared for all future requirements. To learn more about our services please contact us by email or give us a call!
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