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How to prepare your organization for the SEC’s new climate disclosure rule

July 9, 2024

by Darin Styles, CPA, CFE

Earlier this year, we wrote an article about new sustainability legislation in California and Europe that mentioned a U.S. Securities and Exchange Commission (SEC) regulation set to be issued this year.

The SEC did in fact issue the regulation in early March. Known as the climate disclosure rule, the regulation requires certain U.S. public companies to report their greenhouse gas emissions and climate risks beginning in 2026. Shortly after the SEC’s issuance, the rule was met with a slew of legal challenges—some claiming it went too far, and others claiming it didn’t go far enough.

At the time of this writing, the SEC has paused the implementation of the rule while it defends its validity in court.

Nevertheless, experts say the SEC’s climate disclosure rule is still coming; the pause won’t have much of an impact on its scope or requirements. This isn’t a surprise considering the recent legislative updates at home and abroad: environmental, social, and governance (ESG) standards are here to stay.

With this in mind, it’s prudent to begin preparing your organization (even if it isn’t publicly traded) for the SEC’s climate disclosure rule as soon as possible. Here are three things you should consider doing now.

Determine if and how you will respond to the SEC’s climate disclosure rule.

The first step is to evaluate the rule and determine how your organization will be impacted. This will involve determining reporting obligations throughout your organization as well as timelines for compliance.

Of course, the rule will impact different industries in different ways, and some organizations may not be impacted at all. If your organization isn’t impacted by the rule, it’s worth asking: Will you voluntarily respond?

As I mentioned, ESG standards aren’t going anywhere. Embracing ESG principles can not only help to keep your organization ahead of future regulations, but it can also help to create long-term value and resilience.

If you choose to voluntarily comply with the SEC’s rule, the good news is you’ll have more flexibility in how you go about it. You can base your strategy for disclosures on your values as well as your stakeholders’ and employees’ desires.

Keep in mind that even if the SEC’s climate disclosure rule doesn’t directly impact your organization, your status as a vendor to larger corporations (e.g., Amazon) could require you to comply.

Determine which data and metrics to report.

In other words, what information do you need to gather? This starts with identifying applicable reporting requirements as well as data sources. Examples of internal and external sources could include utility usage, travel, sustainability disclosures, stakeholder feedback, and industry benchmarks.

It’s important to also assess how you collect climate data and enhance your data processes if needed.

Generally, there are two ways to improve your climate metrics: Reduce your numbers (i.e., reduce your greenhouse gas emissions or water use) or reduce the uncertainty around your numbers (i.e., obtain more precise measurement of data that impact climate metrics). Improving your data processes is one way to help reduce this uncertainty.

Conduct an initial assessment.

Once you’ve determined how the SEC’s climate disclosure rule will impact your organization and identified the data you’ll need to collect and disclose, consider conducting an initial assessment of your organization’s ability to comply with the rule.

This of course requires analyses and evaluations; certain software applications can help. The Environmental Protection Agency (EPA) provides a free spreadsheet for conducting assessments, but it may not work for more complex organizations. That said, it can give you a place to start.

Prepare your organization with a forward-thinking partner.

At Abdo, our experts are keeping up with the latest regulatory changes and are happy to answer any questions you have. We can also help you conduct an assessment of your organization’s sustainability performance and compliance with the SEC climate disclosure rule.

If you’d like to get a clearer picture of how the SEC climate disclosure rule could impact your organization, contact us today.


 

Meet the Expert

Darin Styles, CPA, CFE

Darin helps businesses find solutions to their complex challenges with a focus on fraud prevention and forensic analysis.

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