Unpacking the SEC climate disclosure rule: a shift towards sustainability reporting

Position Green’s Managing Director in the USA, Jason Stanley, has shed light on the intricate details of the US Securities and Exchange Commission’s (SEC) newly proposed climate disclosure rule, explaining its far-reaching implications on US and foreign private issuers.

According to Stanley, this new mandate, known as the ‘Enhance and Standardize Climate-Related Disclosures for Investors’ Act, aims to establish a standardised climate-related reporting system across all US registered companies. This disclosure rule aims to facilitate greater transparency in the US capital markets by requiring organisations to reveal their plans for mitigating climate risks, protecting investments, and preserving shareholder value.

In addition, businesses will be expected to quantify emissions data, enabling investors to compare and make informed decisions about companies that align with their risk preferences. Furthermore, Stanley claims that these forward-looking practices will ultimately help businesses intelligently future-proof their operations, aiding a smoother transition to a low-carbon economy.

The proposed rule seeks to ensure that all companies, including foreign private issuers, offer comprehensive disclosure about their climate-related risks and greenhouse gas emissions. These disclosures are expected to encompass a company’s climate-related governance as well as their strategies for transitioning towards sustainability.

The new SEC rule will prioritise transparency throughout the reporting process, akin to financial disclosures. With time, companies will have to adhere to various assurance requirements, enhancing the reliability and credibility of the disclosed information.

Companies registered with securities (approximately 30,000), will be obligated to comply with this new climate-related disclosure rule, marking a significant shift from voluntary to mandatory sustainability reporting in the United States. The rule also sets a phased compliance schedule to aid a smooth transition to these new reporting requirements.

Furthermore, companies that publicise climate-related goals or commitments will face additional disclosure requirements relating to their goal-setting and strategies. Non-compliance could lead to significant administrative sanctions and potential legal liabilities, thereby emphasising the importance of adherence to these new disclosure norms.

The SEC’s new rule aligns with the Task Force on Climate-related Financial Disclosures (TCFD) framework, outlining four key disclosure areas and 11 key reporting requirements. The rule also introduces a materiality assessment from an investor’s perspective, covering both financial materiality and GHG emissions metrics. This allows investors to identify, benchmark, and evaluate a company’s risk exposures effectively.

Position Green offers comprehensive support to companies navigating this new SEC climate-disclosure rule. Through analysis, training, and digital solutions, they assist businesses in understanding and adhering to the complex requirements of the rule.

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