What EHS & ESG Teams Should Know About the New SEC Climate Disclosure Rule

The new Climate Disclosure Rule proposed by the U.S. Securities & Exchange Commission last month is likely to have a significant effect on how companies report operational risks and impacts on climate change—and how Environmental, Health & Safety (EHS) and Environmental, Social, & Governance (ESG) professionals will likely need to approach their work moving forward. The proposed rule would directly impact publicly traded companies and indirectly impact suppliers to publicly traded companies. 

The proposed rule would mandate that publicly traded U.S. listed companies report on the ways that climate change could impact their financial performance, along with a detailed accounting of how their own emissions could contribute to environmental factors. This first of its kind move from the SEC would move reporting standards in the U.S. to align more closely with European Union reporting guidelines and significantly alter how, when, and what public companies would need to track and divulge in their ESG operations. Though the proposed rule is still open for public comments and will face significant legal challenges before being finalized and accepted, certain aspects of the proposal are worth understanding and preparing for now as a likely inevitable shift in global ESG responsibility takes hold.  

The first part of the proposal would require a more granular accounting of climate risks within business operations as well as a detailed assessment of how environmental factors could affect value chains in both the short and long term. One aspect of what the SEC hopes to accomplish is to clarify reporting requirements and establish a consistent and comparable standard of operational data for investors. Companies that already have robust operational data tracking systems in place should be able to adjust accordingly for the new reporting requirements without much effort. Companies that still lack the tools for the collection and tracking of ESG data should act now to establish the systems that will be necessary once the rule goes into effect.   

The second part of the proposal could carry a more pronounced impact on the scope and workload of EHS professionals. While many publicly traded companies already report on their Scope 1 (direct) emissions and Scope 2 (purchased energy) emissions, the new proposal would require Scope 3 (value chain) emissions to be tracked and reported as well. In addition to reporting by publicly traded companies, suppliers to publicly traded companies may be asked to provide more detailed information to their customers.  This expansion of Scope 3 reporting requirements would be “burdensome and…expose companies to litigation if third-party data ends up being wrong,” according to a Reuters poll of corporate groups. Some companies have already questioned the feasibility of calculating climate change risks and only a fraction of public companies already utilize scenario analysis to try to predict future market risk factors.              

Regardless of how the proposed rule continues to take shape in the months ahead, this move by the SEC along with the continuing regulatory standards set by the EU herald an increased focus on ESG reporting requirements in the coming years. Companies no longer have the luxury of dragging their feet on putting robust and scalable ESG data tracking systems in place. The bar on emissions reporting and climate compliance factors will continue to raise, and the operational systems around risk factor assessment and mitigation will increasingly be linked to overall valuation and long-term profit projection.  

To meet the goals that companies set for themselves and to remain poised for the reporting standards to come, information management systems are fundamental for continued success. The right software tools backed by in-the-trenches expert consultation on implementation and optimization of organizational systems will be the key to navigating and prospering throughout this SEC ruling and the further ESG mandates to follow. 

The consultation services of CAPACCIO, along with the customizable EHS-Dashboard™ data tracking platform, can help publicly traded companies and their suppliers to facilitate the calculation of Scope 1, 2, & 3 emissions while unifying company ESG data across an organization data for analysis, communication, and reporting needs of EHS teams and stakeholders alike. CAPACCIO works to build elastic systems that align ESG goals with overall business concerns for long term growth.   

CAPACCIO’s management clients have risen to the Forbes 500, the Newsweek Green 500, and the World Economic Forum (WEC) Top 100 World’s Most Sustainable Corporations.