As we approach the end of the year, capital owners, asset managers, and companies must stay informed about the disclosure requirements proposed by the U.S. Securities and Exchange Commission (SEC). With the final rule now anticipated at the end of 2023 or early 2024, here’s what organizations need to consider based on the latest information:
Anticipated Key Components of SEC Climate Disclosure Requirements:
GHG Emission Disclosures
- Scope 1 and Scope 2: Report direct emissions from owned or controlled operations and indirect emissions such as from purchased electricity, steam, heat, or cooling. Disclosures should detail each type of greenhouse gas, both separately and collectively, required in gross terms and by intensity (e.g., tons of CO2 per revenue dollar).
- Scope 3: Reporting on indirect emissions from upstream and downstream activities is under discussion. This would apply if a company has material Scope 3 emissions or has set a GHG emissions target that includes Scope 3.
- Discuss the influence of climate-related risks on business operations, strategic planning, and finances.
- Detail processes for the detection, evaluation, and management of climate risks.
- For companies employing internal carbon pricing or scenario analysis, disclose the approaches and any financial implications.
Timing and Location
- Required disclosures should be included within SEC registration statements and Form 10-K filings.
- Scope 1 and 2 emissions reporting may begin with FY 2024 reports, with Scope 3 reporting following in subsequent years, pending final rulings.
Meanwhile, California’s legislation, set to come into effect in 2027, mandates scope 3 emissions disclosures for companies in the state. This could also streamline compliance efforts for the SEC’s regulations. For more details on how federal requirements, please check our latest post on California climate regulation.
With the rule coming closer to a final decision, the focus shifts from the cost of investing in climate reporting to the risks of avoiding it. The SEC has the authority to impose fines and initiate legal actions against companies that fail to report in line with the new rules. These actions don’t just pose a financial burden; they also have lasting consequences on a company’s reputation and credibility in the market.
Harmony brings a unique approach to quantifying emissions and tracking progress towards net zero targets. Harmony ensures a standardized reporting process by consistently evaluating over 11,000 companies on the same parameters. More importantly, the platform enables users to benchmark a company’s profile against its peers, allowing them to identify risks and opportunities for development. If you’re navigating the complexities of the new disclosure requirements or interested in understanding these insights further, connect with Harmony’s team.