November 2, 2022
The Securities and Exchange Commission (SEC) recently proposed new guidelines that would require public companies to disclose climate-related risks and opportunities in their financial filings. If enacted, these guidelines would provide investors with greater transparency into how companies are managing climate-related risks and opportunities. The SEC Proposal for Climate-Related Disclosures applies to US 10-K filers and foreign private issuers who file 20-F forms with the SEC.
In a recent survey taken by 700 executives from 14 countries, (2022 Climate Check, Deloitte), in collaboration with Oxford Economics, over half of them have invested in the technologies necessary to measure, reduce, and report their greenhouse gas emissions. This means that most companies don't have the expertise in house to comply so they need external support to ensure they are getting things right.
The new regulations could have a significant impact on how businesses operate, so it's important to understand what's included and how it could affect you. Here's everything you need to know about the SEC proposal for climate-related disclosures.
In March 2022, the SEC proposed the issuer rule: proposed amendments that would require public companies to disclose certain climate-related financial data such as greenhouse gas emissions data, in their public disclosure reports. The issuer rule includes companies having to disclose scope 1, 2, and 3 emissions (including their products across the supply chain).
The Task Force on Climate-Related Financial Disclosures (TCFD) and Greenhouse Gas (GHG) Protocol are two key frameworks that public companies are strongly recommended to follow. Whether these proposed rules get set in place sooner or later, there is higher demand than ever for climate-related data to be disclosed to investors.
Likewise, the SEC proposed in the investor rule in May 2022: ESG-focused funds and firms would be liable for disclosing more specific metrics regarding their ESG investments.
The goal of these proposed rules is to give investors a better understanding of the risks and opportunities associated with climate change. By disclosing their greenhouse gas emissions, companies will be able to demonstrate their progress in reducing them. This could lead to increased investor confidence and improved financial performance.
Investors have a major role to play in promoting sustainability, and these proposed rules are an important step in that direction. By having access to accurate and timely information about the risks and opportunities associated with climate change, investors can help to make sure that companies are taking their pledges to achieve net zero seriously.
Until now, climate-related reporting has been done in the United States based on materiality and the SEC proposal is aiming towards companies using voluntary reporting frameworks to disclose data more comprehensively. This proposal of the mandatory condition would mean the scope of data disclosed would broaden past materiality.
The proposed rules would not mandate any specific disclosures; rather, they would give companies flexibility in how they choose to comply. For example, a company might choose to disclose its emissions data in accordance with the greenhouse gas reporting guidelines of the Climate Disclosure Standards Board or another recognized reporting framework. Alternatively, a company might choose to provide narrative disclosures about its climate-related risks and opportunities and the policies and procedures it has put in place to manage them.
It is looking as if these proposals will be adopted by the end of 2022 but it is faced with suspected legal challenges by experts who say some will deem the rules unnecessary. However, due to climate-related disasters, health risks, greenwashing, fair risk assessments, and consumer demands, the evidence is clear: accurate and precise climate-related data disclosure is paramount.
In recent years, there has been an increased focus on the financial risks posed by climate change. For example, climate change could have a material impact on a company's operations, demand for its products or services, supply chain, or ability to obtain insurance coverage. In light of these risks, investors have been calling on companies to provide greater transparency on their exposure to climate-related risks and opportunities.
"Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognize that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions." - SEC Chair Gary Gensler.
Registrants would be required to disclose data regarding:
(1) the registrant’s management of climate-related risks and relevant risk management procedures;
(2) how any climate-related risks identified by the registrant, in the past or present, have a material impact on its business and financial statements as a whole, which may manifest at any point in time;
(3) how any identified climate-related risks have affected or may affect the registrant’s strategy and/or business model;
(4) the impact of climate-related events such as severe weather events and other natural conditions, and transition activities listed on the registrant’s consolidated financial statements, as well as on the financial estimates used in them.
If the filer has a climate target, they would have to report scope 3 emissions as well, beginning a minimum of one year after their scope 1 and 2 disclosures. It would be based on unit per revenue and disclose how they arrived at their estimates. What takes the effort out of that is implementing an activity-based carbon accounting methodology where sources of emissions are entered into an emissions management software platform directly and precise and accurate emissions tonnage is provided in lieu of inaccurate estimations that would cost a fortune to calculate and assume with outdated consulting methods. The activity-based method is also the necessary structure because without knowing baseline emissions, tracking carbon-reduction targets would be impossible and proof of progress wouldn't be accurate. Companies are also at risk of being labeled greenwashers when they provide inaccurate data when tools are available to present the data precisely.
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Related content
For more information about how to report on your emissions, check out our additional resources:
• How Are Carbon Emissions Measured?
• Decarbonization: How to Set Goals and Sustainability Targets
• How to Measure Your Business' Carbon Footprint
• Carbon Accounting Methodologies for Measuring Emissions
Large accelerated filers would be required to comply with the new rules for fiscal years beginning on or after December 15, 2022, while smaller reporting companies and emerging growth companies would have an additional year before they would be required to comply.
There's no better way to see the direction your market is taking than having evidence of trends. What we're seeing this decade is a complete shift in the way infrastructure, investments, building, planning, transporting, procuring, and any other industry, will prepare for the energy transition and their contribution and share of the green economy. Under this pressure, carbon reporting is a must and there is no time to wait.
Net0 is fully compliant according to localized and international regulations.
As a leader in the carbon management software space, Net0 offers everything businesses need to comply with the SEC regulations for carbon reporting. By automating data entry and report generation, businesses can ensure that their data is accurate and compliant with the regulations in real-time. In addition, Net0's platform can help businesses to track their emissions and identify areas where they can reduce their impact on the environment.
Measuring your corporate footprint is the first step on the way to understanding the emissions profile of the business. While carbon accounting can be a complex and time-consuming process, the AI-driven Net0 platform uses automated tools to make this process simpler and more efficient.
With Net0, businesses are enabled to:
1) Automate data entry by importing data from various sources
2) Use a spend-based, activity-based or hybrid methodology to calculate emissions
3) Make the most out of API and ERP integrations available off the shelf to put carbon accounting on autopilot
4) Utilize Data quality control measures
5) Identify gaps and missing data to ensure data accuracy
6) Work with suppliers to measure scope 3 emissions via the vendor outreach programme
7) Involve the team and all relevant stakeholders
By using these features, businesses can streamline their carbon accounting process and get accurate, reliable data quickly and easily.
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The SEC has provided a Climate Disclosure framework to be used by organizations. Companies are expected to disclose how they are managing the risks and opportunities associated with climate change.
The report should include information on the company's strategies, policies, and practices regarding climate change, as well as the impacts of these activities on the company's business. SEC has also provided guidance on what disclosures should be included in the report.
Net0 Reporting functionality considers this guidance when preparing their reports, and enables companies to report both the GHG emissions data and narrative related to the corporate environmental strategy.
By disclosing their climate-related activities to the SEC, you can provide investors with the information they need to make informed investment decisions and satisfy the new regulatory requirements.
We understand the importance of reducing carbon emissions, and we are committed to helping businesses do their part.
If you are looking to sustainably reduce your carbon emissions, Net0 is the solution for you. Our platform is the most advanced and effective way to reduce your emissions. Here are some of the most effective and popular carbon reduction features that Net0 offers:
Using Net0 software, businesses can simulate how different factors, such as operational changes or switching to renewable energy sources, can impact their carbon emissions reduction. The software also allows businesses to track their progress towards their carbon reduction goals.
Using Net0, businesses can simulate the financial impact of reducing their carbon emissions by analyzing their current emissions data and setting reduction goals. This allows businesses to make informed decisions about investing in sustainability efforts and demonstrates a commitment to reducing their environmental impact.
By using Net0 to monitor carbon performance, companies can track their carbon emissions and see how they compare to industry benchmarks. This allows them to set goals for reducing their emissions and make more sustainable business decisions.
With Actions functionality, businesses can assign specific emission reduction tasks to team members and track progress towards meeting overall carbon reduction goals. This helps ensure accountability and efficiency in reaching those goals.
Using Net0, businesses can track their progress in reducing carbon emissions and easily share this information with stakeholders. This transparency helps to build trust and accountability within the company and the larger community.
With its user-friendly interface and comprehensive functionality, Net0 is the perfect tool for businesses looking to measure their carbon emissions effectively. Contact us today to learn more about how we can help you achieve net zero emissions.
The SEC proposal is an important step in ensuring that businesses are transparent about their emissions and carbon footprints. By disclosing this information, businesses can help investors make informed decisions about where to invest their money. Additionally, this proposal could help businesses to reduce their emissions and become more environmentally sustainable.
If your business is preparing for SEC regulations, Net0 is the perfect tool for businesses looking to measure and measure their carbon emissions effectively.
Book a demo with Net0 today and experience the climate action platform that streamlines measuring, reducing, offsetting unavoidable emissions, reporting, and certifying, keeping you progressing towards a climate-neutral future.
