The Winds of Change – The SEC releases its long-awaited disclosure rule

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“The future is in the air; can feel it everywhere; blowing in the winds of change. – Scorpios[1]

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The title and opening quote are not meant for histrionic or empty platitudes, but to convey a slow but steady process that happened in the United States. Establishment in the United States

What’s in the rule?

“It is what it is. But it will be what you make of it. – Pat Summitt[2]

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Under the proposed rule, all publicly traded companies would have to disclose their climate-related risks in their financial reports to the SEC and explain how those risks are likely to affect their business and strategy, according to a commission fact sheet.

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All companies would be required to share the emissions they generate at their own facilities, and large companies would have to have those numbers verified by an independent auditing firm, the SEC said. If indirect emissions produced by a company’s suppliers and customers are “material” to investors or included in the company’s climate goals, the SEC said those emissions must also be disclosed.

For companies that have publicly committed to reducing their carbon footprint, the SEC said it will ask them to detail how they intend to achieve their goal and share any relevant data. Companies should also disclose their reliance on carbon offsets, which some climate activists view with skepticism, to meet their emissions reduction targets.

If a company uses an internal carbon price, it will need to share information about the price and how it is set. In 2019, ExxonMobil won a high-profile lawsuit alleging the oil giant misled investors by using two different estimates — one public, one private — of the future costs of climate change.

What is the impact of data?

“Data is like garbage. You better know what you’re going to do with it before you pick it up. -Mark Twain[3]

Companies will be responsible for providing qualitative and quantitative reports on the emissions produced, as well as the effect of climate-related risks on the company’s operations, activities and strategy. Companies with public plans to reduce emissions or have specific sustainability goals will also be asked to share their plans for achieving them and progress with the regulator. The SEC believes that these new regulations, which build on the 2010 SEC guidance for companies to disclose information about the effects of climate change, will create new industry standards for reporting climate-related emissions and risks. .

A central regulator like the SEC reviewing companies, especially larger ones, and setting new standards for reporting climate-related emissions and risks will provide investors and the public with more reliable and comparable data, allowing them to compare the environmental footprint of companies both within and across industries. Among the SEC’s tools, comment letters and no-action letters can lead to remediation programs at companies and financial institutions, especially those that SEC investigations suspect of misrepresenting reported emissions, or to consider their emissions and climate-related risks as “material”.

What is the program ; When will it come into effect?

“Tell me when, when, when” – Englebert Humperdinck [4]

The rule was officially posted on the SEC website on March 21, 2022, for which the public will have 60 days to submit comments to propose changes. While the rule’s new requirements will be phased in over several years, the largest companies will begin disclosing climate-related risks in FY23 and will begin reporting supplier and customer emissions from FY23. exercise 24.

A solution?

Financial institutions must review their climate data reporting structures, improve their data collection procedures, and implement a reporting plan for fiscal year 2023. Companies must become more transparent and adhere to SEC climate disclosures, d ‘an initial gap analysis to the design of roadmaps to meet the 2023 reporting requirements and effective implementation.

Since its publication, the rule has received mixed reviews. Some question the SEC’s ability to investigate established standards, provide advice, and investigate climate and emissions-related topics, given their inexperience and lack of subject-matter-expert personnel in the SEC. space. Others are skeptical about companies’ ability to determine whether indirect emissions produced by suppliers and customer accounts are “material” because these emissions (classified as Scope 3 by the EPA) account for up to 75% of all greenhouse gas emissions produced. While the American public has largely supported regulations requiring companies to report their climate impact and stick to their sustainability goals, Europe is still leading the global push for climate-related financial disclosure. , alongside other world champions of sustainable development, such as New Zealand, Japan and Hong Kong. Kong, Singapore and Switzerland.

Article by Benjamin Harding, Efraim Stefansky, Pablo Wenhammar

About the Author

Benjamin Harding is Managing Director, Efraim Stefansky is Director and Pablo Wenhammar is a consultant at capoa global business and technology consulting firm.








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