What the SEC climate disclosure rule means for your business

As the SEC finalises its new climate disclosure rule, we talk to Wes Bricker, PwC’s US Trust Solutions Co-Leader, about the ramifications for executives

WRITTEN BY: KATE BIRCH

The U.S. Securities and Exchange Commission (SEC) has proposed a historic new rule that would require publicly traded companies to significantly increase reporting of their climate-related risks, emissions, and net-zero transition plans.

The new climate proposal aims to enhance and standardise companies’ climate-related disclosures for investors and other market participants, including greenhouse gas emissions and exposure to climate change risks – ensuring consistency in the quality, and comparability, of information contained in corporate climate disclosures.

If enacted, the new ruling would apply to all public companies that file the US 10-K as well as foreign private issuers that file 20-F forms with the SEC. Although the SEC’s regulations don’t apply directly to private companies, privately owned businesses that are in public company value chains still need to pay attention.

“Under the rule, companies would be required to disclose climate change risks to their operations when they file registration statements, annual reports, and other filings,” Wes Bricker, PwC’s US Trust Solutions Co-Leader tells Business Chief.

5 Things Every Company Should Consider

While all businesses are at different points in their ESG journey, here are five things all should consider:

1. Assemble a cross-functional team to create accountability for ESG performance

Finance has the experience to oversee accounting, controls and reliability of ESG information, while sustainability teams have the deep subject matter experience and context. Companies should address any knowledge gaps through upskilling or hiring.

2. Ensure you have the dataregulators will expect

It’s critical to clearly define ESG metrics, their scope and boundaries, what systems the information comes from and who the owners are inside the company. To do so, companies should gather baseline data to compare current performance against future goals and milestones.

3. Set an overarching strategic approach to ESG

This is not an exercise merely to tick a regulatory box, but to create sustainable advantage and value. Companies should connect ESG strategies, milestones and reporting to the overall business strategy.

4. Upskill corporate directors

Boards, especially audit committee members, need to better understand how ESG fits into the overall business strategy to appropriately manage governance oversight responsibilities

5. Prepare for independent assurance

The SEC proposed independent, thirdparty assurance for Scope 1 and Scope 2 emissions to bolster confidence in climate change information (for accelerated or large accelerated filers).

Wes says the SEC’s proposal is historic for the US and fits into a global pattern that is increasingly pushing for critical reporting requirements for greenhouse gas emissions, climate risk disclosure, and other sustainability-related information.

“While climate disclosures around the world vary, the SEC’s proposal seeks to foster comparable, consistent climate information that companies with global operations are already complying with and the rule aims to be consistent with the building blocks approach set out by international organisations,” he says.

Ensure consistency and prevent greenwashing

An increasing number of organisations are making net zero commitments and providing reporting to share information about emissions and their pathway and milestones to transition – a disclosure of metrics relating to company climate journeys that is currently voluntary.

But now regulators, investors and other stakeholders are increasingly asking for comparability, consistency and enhanced quality in ESG reporting, explains Wes, and SEC rulemaking is a step in that process. “This is an important step to prevent greenwashing and to make sure everyone has access to the same quality of information,” he says, adding that the timing of the proposal is reflective of what investors are expecting from businesses.

“Historically, the SEC steps in to enact measures when there’s a significant need for the disclosure of information relevant to investors’ decisions. Many companies have made net zero commitments and have been voluntarily disclosing their climate journey. But investors, as well as consumers and other stakeholders, are not only expecting companies to report this, but the overall market is pushing companies to disclose it in a standardised way that allows for comparability.

“Accurate and standardised reporting also provides investors and other market participants with more consistency. As well, standardised reporting creates accountability for companies in regard to their progress in meeting their ESG goals and protecting the business from climate-related risks.”

Wes explains the proposal is a muchawaited step by the SEC to respond to investors’ expectations to have better, more reliable information to make decisions. “It’s a necessary step to provide investor-grade, decision-useful information that can inform the decisions that underpin the functioning of the capital markets,” he says.