What Is The New SEC Climate Risk Reporting Requirements?


What Is The New SEC Climate Risk Reporting Requirements?

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The security and exchange commission SEC is saddled with the responsibility of devising plans and rules required to be meticulously followed by businesses when matters of Investments are raised. Currently, companies in the United States of America are mandated to provide investors with comprehensive data about the financial performance, trajectory, and possible risks to promote transparency.

On March 21st, 2022, a new declaration was revealed by the SEC as an unprecedented requirement for the companies to integrate relevant climate-related information in their reports. This is purported to be in recognition of the importance of driving sustainability in the investment sector. This new requirement is required to take effect in the year 2023 and apply to SEC filings in 2024. Here is what you need to know about all of this.

To What End Is the New Proposed SEC Rule

No doubt, this sudden decoration would shake things up a bit, but it seems to be for the greater good in the coming times. Prior to the revelation, the reporting of climate-related information was something that has been considered merely voluntarily, with no great emphasis placed on its relevance. 

This can’t be faulted as there have been no laid down rules hitherto or specified requirements by the SEC. In a statement made by the chair, Gary Gensler revealed that the regulatory body is heeding the call from investors, companies, and regulators for the exposition of climate change news and the effect on businesses.

The proposed rule is also a channel to address the current climate crisis based on the announcement made by the president of the United States of America to attain a 50% reduction in net greenhouse pollution. It is also a great way to establish more accountability and help stakeholders make better investment decisions, and in the word of Gary Gensler: “It provides investors with consistent, comparable, and decision-useful information.”

Key Areas of The SEC Climate Disclosure Regulation 

The new regulation entails that public companies include including foreign private holders would present climate-related info and periodic report and includes the following compulsory disclosures:

  • The actions and governance of risk tied to the climate in the tied to the climate change by the head of the company and management. 
  • Identification of climate risks and a detailed report of the influence on the business or likely impact with coherent financial reports impact business models, strategies, and outcomes.
  • The organization operations for the recognition, ranking, and management of the climate based risks and the integration of the issues the general risk management processes.
  • Disclosure of scope 1 and 2 greenhouse gas emissions in absolute quantity and intensity
  • The company’s target goals as it relates the climate safety and actions that can be employed to achieve the goals include carbon offsets, RECs, etc.

Impact This SEC New Regulation Might Have On Investment Operations

As alluded to, the stipulated requirement has already been the center of so much substantial debate, and several comments have been made. While a number are in support, a good number also disagree on how it affects investment processes.   

Companies should respond to this proposed rule.

  • Organize board meetings to revise their participation in the Governance of climate-related initiatives, and it would also be nice to introduce climate experts in this discussion. 
  • Develop risk management strategies as it relates to the climate and also adapt and prepare a description of a risk management plan under this proposal.
  • Companies should also be prepared to provide a well-detailed analysis of how climate risk could affect its financial capacity, operations, identify and disclose the strategy that will encompass its management.

Final words on proposed SEC Climate Risks Disclosure

As initially mentioned, this rule has not been filled, and it is still open to several public comments till about a year from now. So companies need to consider the cost feasibility of this proposed rule and determine their participation in the process. Commissioner Pierce, who was against this proposal, argued about its abrupt alteration of the disclosure pattern and believed that the company should be allowed to report its performance through its specific ways.

This rule is expected to be delivered in phases, and companies may not be required to provide information on climate risk until 2024. The public would also have about 60 days to consider the proposed rule and contribute. While we await the final deliberation and turn of events, it is expected that companies start to get their preparation in order.

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