The SEC Climate Disclosure Rule is Public: Here’s What Companies Need To Do Now

The U.S. Securities and Exchange Commission (SEC) has finalized its long-awaited ruling that will require thousands of companies to disclose climate risks and data. Some stakeholders see the SEC ruling as going too far, while others say it has not gone far enough to address pressing climate issues. Whatever your view, now is the time to solidify plans for compliance. Here are five steps you can take to prepare now. 

1. Refine climate governance

With climate disclosure now the purview of the SEC, companies should review current governance approaches and identify opportunities to strengthen them. This may include increasing corporate board oversight as well as board competency in climate-related matters.

It also could be helpful to review the role and composition of the committees tasked with climate governance, ideally ensuring C-suite representation and active subject matter experts who can provide practical insights into corporate targets, progress and potential exposure.

Companies will also benefit from engaging with external experts who can share best practices and provide a candid third-party perspective on how corporate commitments, plans, timelines and actions may be perceived externally.  

2. Build agility in tracking, reporting and assurance for greenhouse gas data

It’s all about the data! Companies should take steps to minimize potential unknowns, gaps, and vulnerabilities around their tracking and reporting. Review what you are tracking and how you are tracking it. Consider questions such as: Who is on point for ensuring data quality? Do they have the experience to deliver against rising expectations for data quality and integrity? What is the basis for our company’s climate-related calculations?

Coming requirements for enhanced levels of third-party data assurance — shifting from limited to reasonable assurance — means companies should plan now for the additional time and budget involved with data compilation and management. It’s also a good time to explore what it would take to implement use of a climate disclosure framework, such as the Task Force on Climate-related Financial Disclosures (TCFD), or how to level up initial efforts to align to external standards. Doing so can strengthen your overall reporting efforts and reliability of disclosures. 

3. Review your emissions reduction plans

Tracking and reporting are at the heart of the SEC requirements, and stakeholders will invariably measure and compare climate performance among corporations. To prepare for likely peer comparisons by external stakeholders, companies need to proactively conduct (or refresh) peer benchmarking of this fast-moving space.

An audit of the climate-related questions or expectations in requests for proposals and competitive tenders is a relatively basic first step. Along with other information, this audit can provide context to help the corporate climate governance committee re-evaluate current goals and progress. Progress reviews will likely become a regular practice, as climate considerations are increasingly incorporated into standard business planning and budgeting processes.

To minimize potential accusations of greenwashing, consider submitting corporate emissions goals for approval by the Science Based Targets initiative. Whichever emissions reduction goals and targets you set for your company, provide transparency in the efforts to achieve the goals, as well as provide timely, accurate updates on progress and barriers to achievement.  

4. Evolve your approach to risk

With this ruling, the SEC is confirming what some prominent investors have been saying for years: climate risk is business risk. While climate risk management and disclosure are akin to longstanding financial disclosure requirements, in many ways, climate action is more challenging and subject to interpretation.

Companies familiar with preparing TCFD-aligned reporting have already begun to see how the business community is expected to address climate-related issues as both material and ongoing business concerns and investment concerns. By now, companies need to be working to integrate climate risk assessment and mitigation efforts into their overall enterprise risk management process. Participating in relevant industry, corporate, and/or location-based groups can also help to provide perspective and illuminate emerging risk issues. 

5. Look ahead

Looking ahead, companies need to see this SEC ruling as the beginning — not the end — of climate-related disclosure fueled by regulation. Now is the time to re-evaluate potential implications of additional frameworks and requirements such as the European Union's Corporate Sustainability Reporting Directive (CSRD), the California Climate Corporate Data Accountability Act, and the United Kingdom's Climate-related Financial Disclosure (CFD) regulations, to name a few.

A unified approach to alignment with multiple regulations can reduce risks and compliance costs. More strategically, companies must look ahead at their business — including their customer expectations, growth strategy, geographic footprint, value chain, production model and vulnerabilities, investments, supply chain, and other factors that need to be considered with the SEC ruling.

The SEC ruling affirms that business strategy and climate strategy engage similar stakeholders — including shareholders and the broader investment community, regulators, top management, current and prospective employees and customers, and the media, among others. Those audiences are watching closely.   

Today, effective climate management and disclosure must be a part of overall corporate strategy. Companies need to continue to evolve governance and disclosure of climate-related risks and performance not only to prepare for SEC requirements, but also to find new sources of competitive advantage and to realize opportunities while meeting evolving stakeholder expectations in a rapidly changing world.