New target for ESG emissions reporting affects both organizations and their third-party vendors.
Organizations with operations in the United States are scrambling after the U.S. Securities & Exchange Commission proposed stricter oversight of climate change disclosures. Rules put forward by the SEC would standardize climate reporting to provide investors with the information they need to make investment choices based on Environment, Social and Governance (ESG) principles.
The rules impose sweeping requirements for specific and extensive climate reporting disclosures, force organizations to obtain third-party verification of those reports and create some form of liability for organizations that report inaccurately. While the proposal would likely not take effect for several years, the time to act to collect pertinent ESG data is now.
The four central disclosures in the proposed rules require companies to report on:
- Governance of climate-related risks and associated risk management processes.
- How identified climate risks may result in a material impact on business and financial statements.
- How identified climate risks may affect business model, outlook and strategy.
- The impact of climate-related events on consolidated financial statements.
Additionally, the proposed rules require organizations to disclose emissions data on direct greenhouse gas emissions, indirect emissions and in some cases emissions from upstream and downstream activity across the value chain. In concert, these requirements are a heavy lift for too many organizations if they aren't already doing reporting of some kind.
A rigorous answer to greenwashing
The timing of these proposed rules is both sudden yet unsurprising. On the heels of our CEO’s warning about the risks of “greenwashing”, an analysis of the world’s 25 largest companies revealed that despite the majority touting big plans for achieving net-zero carbon emissions, the actual reductions planned amounted to less than 20 percent.
This extreme disconnect between claims and actual strategies comes from one main sticking point: The majority of companies were reporting Scope 1 and Scope 2 emissions while leaving out Scope 3 emissions entirely. The new SEC rules are an attempt to force companies into greater transparency so this form of greenwashing is no longer an option.
A ripple through the supply chain
Because the SEC rules will begin to impact the biggest companies first, those companies will have to navigate the uncharted waters of collecting, organizing and analyzing an almost mass amount of climate data from an ever-growing network of vendors, suppliers and other third-party partners. These companies will lead the charge in developing the most streamlined methods of climate data collection and analysis and shape the landscape for smaller companies that become subject to the rules later on.
However, that doesn’t mean smaller organizations should wait around to develop their own climate reporting methodology. If anything, the new rules highlight the importance of an ESG-documented approach to supply chain management related to ethical and climate-conscious partners.
Any company seeking to do business with an organization already impacted by the SEC rules will have to disclose the required metrics to be approved as part of the larger company’s compliant ecosystem. In essence, the new rules will incentivize companies to adopt digitalization strategies for robust emissions reporting.
An opportunity for complete digital transformation
Although the implementation of these new SEC emissions reporting rules will undoubtedly place great strain on many companies, there is an opportunity to catapult your organization into true digital transformation.
There is no "one size fits all" platform. The leading ESG and sustainability solutions enable organizations to collect, analyze, and report data with ease and also have embedded regulatory content, actionable compliance tasks and best-practice workflows to streamline and centralize the management of all ESG risks. This will accelerate maturity in other parts of the business like Governance, Risk and Compliance (GRC) and Environmental, Health and Safety (EHS).
Although adopting a new technology can be challenging, the data collection, validation, verification and analysis capabilities of a unified platform will allow organizations to move beyond mere compliance and toward operational excellence.