On March 21, 2022 the US Securities and Exchange Commission (SEC) released their proposed ESG disclosure ruling that would require hundreds of public companies to disclose their operational and, in many cases, value chain greenhouse gas emissions; exposure to climate risk; and detailed roadmap for achieving any publicly disclosed climate targets. EcoAct provides a comprehensive guide for what to look out for in this ruling.
The purpose of this ruling is to provide consistent, comparable, and decision-useful information to investors to enable them to make informed judgments about the impact of climate-related risks on current and potential investments. The SEC is currently in the deliberation phase and a final voting is expected this April. At EcoAct we are keeping a close eye on the process and have put together a guide for what to look out for ahead of the final vote.
The proposed framework is informed by the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) as well as the Greenhouse Gas (GHG) protocol, although it would differ from the GHG protocol in a few ways. Primarily, this proposed framework would require businesses to establish their boundaries for emissions through a slightly different criteria, however in practice it is unlikely to significantly change how businesses report their emissions.
The new ruling would require companies to provide information about their emissions in their annual reports and stock registration statements. Additionally, companies would be required to disclose particular information about climate risks. This ruling was not only influenced by the need for companies to create and input action plans for the inevitable effects of climate change, but was also designed to provide investors and stakeholders with necessary information to make informed decisions.
The proposed rules would require:
The SEC rules are almost entirely aligned with the GHG Protocol, it is unlikely that you will have to change your existing approach to emissions if you are already calculating your emissions and using this methodology. However, it is advised that you check whether your current Scope 1 & 2 emissions boundary as well as your Scope 3 (Category 15: Investments) emissions includes all entities in your consolidated financial statements. This will help to future-proof your footprint and better align it with your financial reporting.
This new ruling will help to centralize climate risks in decision making for companies and is driven by the demands of shareholders and investors for companies to consider climate reporting as a smart business decision.
If you’re interested in getting serious about calculating you companies carbon footprint reach out to EcoAct and make sure to check out some additional resources like our Carbon Footprinting factsheet.
Contributing writer, Elie Bou-Gharios, EcoAct Senior Advisory Consultant.
Contributing writer, Kirk Kadehjian, EcoAct Business & Management Consultant.
 As defined by the SEC and the US Supreme Court, information is considered material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision, or, put another way, if the information would significantly alter the total mix of available information to investors.
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