As a sustainability consultancy firm committed to corporate responsibility and transparency, we welcome the new U.S. Securities and Exchange Commission (SEC) climate disclosure rule. Though aspects of the original proposed rules have been omitted, the final rule demonstrates a practical bipartisan compromise. It serves as a basis for further action in the future as it underscores growing recognition of the need to address climate-related risks and opportunities to build more resilient businesses.  

In a nutshell, the rule requires disclosure of: 

• Climate-related risks and related risk management and oversight 

• Material scope 1 and scope 2 emissions (for large, accelerated filers and accelerated filers only) 

• Financial statement describing capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events, if the aggregate amount equals or exceeds a 1% threshold against gross profits or expenditures

• Financial statement describing whether carbon offsets and renewable energy credits or certificates have been used as a material component of the company's plans to achieve its climate-related goals 

• Carbon-reduction goals  

Notably, the proposed scope 3 emissions and board-level climate-related risk expertise disclosure requirements have been eliminated. 

We are eager to offer our perspective on the regulation’s strengths and weaknesses, as well as ways in which companies can better prepare for compliance. 

Strengths

Increased Transparency: The rule enhances transparency by requiring companies to disclose climate-related risks, enabling investors to make more informed decisions. 

Standardized Reporting: Standardized greenhouse gas (GHG) reporting streamlines disclosures, making it easier for investors to compare information across companies and industries. 

Risk Mitigation: By identifying and disclosing climate-related risks, companies can better assess and mitigate potential impacts, enhancing their resilience to climate change. 

Long-term Value Creation: Improved understanding of climate-related risks and opportunities drives long-term value creation by encouraging sustainable business practices and investments in new technologies. 

Weaknesses

Compliance Burden: Compliance with the new rule may impose additional administrative burdens and costs on companies, particularly those that are late to developing a climate disclosure strategy. 

Complexity and Capacity Constraints: Climate-related disclosures can be complex, requiring specialized expertise, resources and additional capacity to accurately assess and report on risks and opportunities. 

Enforcement Challenges: Enforcement of the rule may pose challenges, particularly in cases where companies provide incomplete or inaccurate disclosures. 

Lack of Specificity: The rule’s broad requirements may lack specificity, leading to inconsistencies in reporting and interpreting the disclosed information. 

Overall, we see this as a step toward formalizing the work we have long committed to. However, we believe that companies need to strengthen their processes for oversight, management and operationalizing tactics to further reduce scope 1 and 2 emissions, while encouraging value chain partners to do their part.  

By preparing for the U.S. SEC disclosures, companies can also make progress toward other pending regulations, such as the those recently introduced by California and the EU. If companies follow the steps outlined below, they’ll be better positioned for compliance and to evolve with the ever-changing reporting landscape. 

We encourage companies to press on by pursuing the following recommendations.

Prepare for climate reporting 

• Conduct a Climate Risk Assessment: Companies should assess their exposure to climate-related risks, including physical, transition/liability risks. Applying TCFD, and now International Financial Reporting Standards (IFRS) to enterprise-level risk assessment processes, can help identify areas of vulnerability, inform disclosure and shape strategic objectives.  

• Develop & Maintain a Greenhouse Gas Inventory Management Plan (IMP): Develop procedures for managing climate-related detail and public disclosure, outline calculation methodologies, assumptions and data sources. Ensure alignment to recognized standards and frameworks, such as the Greenhouse Gas Protocol, Global Reporting Initiative (GRI) and IFRS. Our greenhouse gas accounting team at ISOS Group can get you situated!  

• Conduct a Climate Scenario Analysis: Conduct a climate scenario analysis to assess the potential impacts of different climate pathways on business operations, financial performance and strategic priorities. Use insights to inform disclosure and strategic growth plans. Our experts can help you evaluate different temperature pathways and even integrate the outcomes into your TCFD report.

Manage oversight and communications 

• Establish Governance Structures: Implement robust governance structures to oversee climate-related disclosures, including clear roles and responsibilities, accountability mechanisms and board oversight.  

• Engage Stakeholders: Engage with stakeholders, including investors, regulators, customers and employees, to understand their expectations regarding climate-related disclosures. Whether you need assistance with a materiality assessment, ESG report or investor communications, our team at ISOS Group is experienced in stakeholder engagement and communications.  

• Collaborate with External Experts: Collaborate with external experts, including consultants, auditors and industry associations, to access specialized knowledge and guidance on climate-related disclosures. Leverage our expertise to ensure compliance with regulatory requirements and best practices!   

Strengthen data management and internal processes   

• Enhance Data Collection and Management: Strengthen data collection and management systems to ensure the availability, accuracy and reliability of climate-related data. Invest in tools and technologies that facilitate data aggregation, analysis and reporting. Our sister company, Scope 5, can help do just that!  

• Conduct a Readiness Assessment: Conducting a readiness assessment prepares companies for third-party assurance of data and other disclosures. It helps test the accuracy of calculations, effectiveness of the management approach and identifies ways to better align with regulatory expectations. ISOS Group’s Assurance practice can support your work to strengthen data tracking mechanisms and management schemes.  

• Provide Training and Capacity Building: Provide training and capacity building initiatives to enhance employees’ understanding of climate-related risks and opportunities and their role in facilitating accurate and timely disclosures. ISOS Group offers regular – ongoing training courses in all leading global standards. We have even developed training specifically to help critical stakeholders understand reporting platforms and what’s needed for greenhouse gas accounting.  

• Foster Continuous Improvement: Foster a culture of continuous improvement by regularly reviewing and updating climate-disclosure practices in response to feedback, emerging trends and regulatory developments. Strive for transparency and relevance in all disclosures!  

At ISOS Group, a division of Environ Energy, we stand ready to support companies in complying with the SEC Climate Disclosure rule, offering expertise in climate risk assessment, emissions calculations and management, decarbonization strategies and renewable energy procurement to help meet your climate goals. Through tailored solutions and innovative approaches, we help businesses enhance their social and environmental performance, seize opportunities for sustainable growth and contribute to a more resilient and equitable future. 

For more information, contact us at info@isosgroup.com.