What the SEC’s New Climate Change Disclosure Rules Mean for Businesses

In a historic ruling, the Securities and Exchange Commission (SEC) proposed a new rule requiring publicly listed companies to include certain climate change disclosures in their registration statements and periodic reports. Companies would need to include information about any climate-related risks that are expected to have a material impact on their business, operations, or financial conditions. The required information about climate risks would also include disclosing a company’s direct and indirect greenhouse gas emissions (GHGs).

The proposed rule changes would require publicly-listed companies to disclose standardized information around four key areas:

SEC chair Gary Gensler justified these new climate change reporting rules in the context of SEC’s founding mission, “Our core bargain from the 1930s is that investors get to decide which risks to take, as long as public companies provide full and fair disclosure and are truthful in these disclosures.” He pointed to the overwhelming support from the investment community, “representing tens of trillions of dollars” for advancing the new rules. A public comment period will remain open until May 20th, after which the SEC aims to finalize the ruling by the end of this calendar year.

For a deeper dive into the ruling, SEC’s three-page Fact Sheet can be found here.

While this ruling will only be enforced for publicly listed companies, there are a number of implications for privately held, small to medium-sized enterprises (SMEs), particularly those that roll up into the supply chain of public companies.

One key area this ruling will impact for SMEs is GHG emissions reporting and verification because it requires publicly listed companies to disclose information about any material indirect (Scope 3) emissions. Scope 3 emissions, also known as ‘supply chain emissions,’ oftentimes make up the lion’s share of the total emissions footprint of any company and are, therefore, a critical component of any climate-risk mitigation strategy.

SMEs that supply products to publicly traded companies should expect this demand for standardized and verified emissions reporting to trickle down to them sooner than later.

Additionally, and perhaps more importantly, SEC’s new climate change disclosure rules allow SMEs to begin taking immediate steps to align their sustainability performance with their organizations’ financial performance in a standardized, metrics-based way. Put simply, this represents the most incredible opportunity since the Industrial Revolution for forward thinking companies to reimagine their business structures to prioritize decarbonization, resiliency and responsible business practices and be rewarded for their efforts by customers and consumers alike.

With the launch of the Sensiba Center for Sustainability and our sustainability and climate action service offering, Sensiba continues to demonstrate how we are positioned to leverage our ‘Business as a Force for Good’ mantra to help our clients tackle big challenges and seize new opportunities. Our approach comprises three phases and can be custom-tailored to meet clients where they are on their sustainability journey, while preparing for a decarbonized future.

The first step is to assess the current organizational landscape to identify key opportunities and threats. This phase enables organizations to establish baselines and pinpoint where to intervene for maximum impact across relevant environmental, social, and governance (ESG) metrics. Our sustainability assessment tool benchmarks against key global frameworks, including TCFD, SASB, and SBTi, and provides valuable insight into how a company can prepare for the SEC’s new disclosure rules.

Our sustainability assessment tool provides a roadmap for future action by identifying low-cost, high-impact intervention opportunities, demonstrating the nexus between sustainability and good business practices. From here, we work with you to develop a strategy for improving performance against industry sustainability metrics, focused on balancing capital constraints and impact intervention opportunities – we call it making the business case for sustainability.

Once you have a structure for measuring, managing, and mitigating your sustainability impacts, we can collaborate with your communications and marketing teams to integrate your sustainability performance into core messaging and branding. This critical step enables you to demystify a complex topic, share your story in an authentic and brand-appropriate way, and cultivate a new generation of consumers who are ready to reward you for your leadership.

For more information about our climate and sustainability practice or to arrange an introduction, contact us.