To foster transparency, accountability, and consistency, the SEC proposes a new resolution that mandates public companies to make certain climate disclosures in their annual reports. Once the deal is signed, public-listed companies must follow a consistent format and a certain standard to help investors and other relevant stakeholders gain better insight into the climate-related financial impact on companies. With this in mind, companies are expected to prepare as they move from voluntary ESG and climate risk disclosure to a mandatory one. This piece is a brief guide and gives companies a heads-up to prepare for what is coming.
Components Of Disclosure Requirements for
The disclosure comprises several key components and is similar to what is being provided by many companies on the already existing disclosure frameworks and standards, such as the financial stability board’s task force on climate-related financial disclosures, TCFD, and the Greenhouse Gas protocols. For these companies, it will be required to provide financial statement disclosure, qualitative disclosures, Greenhouse gas emission disclosures, and governance disclosures.
Getting Prepared For The Disclosure
The first step to preparing for the new climate risk disclosure requirement is establishing and identifying board and management oversight. Companies are meant to identify where the oversight responsibility for climate-related and other ESG matters lies. In this case, it is significant to specify the roles, responsibilities, and involvement of finance, internal audit, board of directors, and other members of the management.
The roles and involvement of the board and the management should be governed by policies and procedures. Climate-related discussions and sessions should be enacted and set at regular intervals. What follows is strategic information and education of the internal and external stakeholders on climate-related risks, data and information collection, and target setting; these set the tone for a better understanding of what is to come with the new regulations.
Assigning stakeholders roles and responsibilities should be followed with accountability and monitoring systems to assess performance and progress. This can also be combined with upskilling the stakeholders on the set requirements and the reporting timelines and combining financial filings with existing climate disclosure. Getting aligned with recognized protocols and standards such as GGHP and TCFD also gives an edge as it makes your organization better situated for the proposed new requirements.
Information is the skeleton of reporting, and your organization should assess how much climate-related data and information is available and ensure that this information is accurate and reliable. If there seems to be a need for more coverage of related information or a shortage of data, then steps should be taken to develop and gather more. It is recommended that companies establish systems and adapt processes to obtain the necessary information and evaluate the materiality of such disclosures. Process flows should be adequately documented, and any defective areas improved. All the information gathering should align with setting short and long-term objectives for the climate-related disclosures.
A step closer to getting fully prepared is to succinctly identify and highlight climate-related risks and opportunities. This encompasses legal matters, policy, the market, product, and physical hazards to your business. It is also vital to assess how much these risks identified across these areas may impact the financial statement of your company and organization over time. One can set up instances to perform several analyses, after which your company should prepare to disclose these scenarios’ assumptions, parameters, and financial impacts.
The final step is to review the current steps and evaluate preparedness in your organization. The time for preparing climate-related information to be filed should be juxtaposed with the deadlines proposed by the SEC. The organization should review the preparedness through a lens of professionalism and also assess if all resources are available. And if all SEC Climate requirements can be met with the reporting deadlines. Engaging in internal auditing and revealing relevant metrics and the signs of progress or milestones attained in achieving set targets is also integral.
With this proposal expected to be finalized in December 2022, it is time that companies set their house in order and perform all necessary actions to be on track when the time comes and also enable better-standardized disclosure requirements which would aid a lot of investors and stakeholders in the corporate world. In a few months, it might be new terrain for public companies as the SEC makes significant changes to the practice of climate disclosure. It is only wise that companies put themselves together and prepare for this new change in the SEC Climate.