The SEC ESG proposal mandates publicly traded companies to measure and report on standardized climate-related risks, including greenhouse gas emissions from their own operations (Scope 1), as well as from the energy they consume (Scope 2), and to obtain independent certification of their estimates. In some cases firms also would be required to report greenhouse gas output of both their supply chains and consumers’ (Scope 3) emissions. Companies would have to include the information in SEC filings such as annual reports.
If enacted, the SEC ESG rule will mark the most sweeping overhaul of corporate disclosures in decades and put the U.S. on closer footing with other developed countries set to begin mandated emissions reporting over the next three years. This proposal comes on the heels of the creation of the International Sustainability Standards Board (ISSB), nestled within the expertise and credibility of the IFRS Foundation, and widely expected to become the globally accepted ESG standards setting body.
What you need to know about the coming SEC ESG climate mandate
What criteria will need to be met for a public company to be affected?
What will the disclosures need to look like or comply with?
The proposed rules would require disclosures on Form 10-K about a company’s governance, risk management, and strategy with respect to climate-related risks. Moreover, the proposal would require disclosure of any climate-related targets or commitments made by a company, as well as its plan to achieve those targets and its transition plan, if it has them.
What is the implementation timeline to be used?
The draft proposal will be subject to public feedback on the proposed rules for 60 days and is likely to be finalized later this year. If approved, emissions disclosures would be phased in between 2023 and 2026. That said, most companies will want to start implementing their climate reporting roadmaps now with pressing legislature on the horizon.
Will Scope 3 emissions be included in the required disclosures, or will it be limited to Scope 1 and 2?
Why companies and investors benefit from standardized ESG reporting
Some companies already disclose their greenhouse gas emissions, as well as those from their suppliers, however, the U.S. lacks clear standards on what exactly companies must report to their investors when it comes to climate impact and risks. This mandate aims to change that, as it would allow investors to judge how well a company is prepared for the future costs of a warming planet against a standardized set of climate measures. The mandate would allow consumers to decide how well a company is performing against a standardized set of climate measures that shape their purchasing decisions. These rules empower regulators to acknowledge climate change as a risk to global economies and financial systems.
Start planning now for enhanced ESG and climate-related disclosures
As an ESG data company, Good.Lab develops software and delivers strategic services to supercharge ESG performance – including the tools to measure greenhouse gas emissions for Scopes 1-3 covered by pending the SEC disclosures. Our team is already helping a growing number of companies comply with these issues today and we are positioned to help your company prepare for long-term business resilience as related to climate-risks before any disclosure transition becomes mandatory.
Reach out to start a conversation with our team of ESG and sustainability experts today!
Disclaimer: Good.Lab does not provide tax, legal, or accounting advice through this website. Our goal is to provide timely, research-informed material prepared by subject-matter experts and is for informational purposes only. All external references are linked directly in the text to trusted third-party sources.
Ready to talk ESG?
Connect with our ESG experts today!
From ESG program development to ESG target setting, data management and reporting, our team of ESG experts can help you fast-track building a world-class ESG program.
CPA.com and Good.Lab Announce Program to Accelerate Accounting Firms’ Growth in ESG Advisory Services
CPA.com, the business and technology subsidiary of the AICPA, and Good.Lab, a leading provider of environmental, social and governance (ESG) software and consulting services, today announced a new ESG practice development program that will enable accounting firms to respond to growing client demand for ESG advisory services. The program launched with an initial cohort of […]
From our inception, we envisioned a company that stands for more than just profit. This vision led us to becoming a certified B Corp and pledging our commitment to “1% for the Planet” – a global alliance of businesses that contribute 1% of their sales towards environmental endeavors. Our partnership with 1%, which started on […]