Alex LassiterFounder and CEO, Green Places.
Climate change is an important theme for companies large and small. To date, however, it is up to individual organizations to decide whether and how to tell the world about their climate impact. Is the cocoa that a confectioner uses more expensive and more difficult to obtain due to rising temperatures? Are an IT company’s servers guzzling electricity from fossil fuels? It is up to business leaders to report how much they contribute to climate change or how it increases their business risk.
But the luxury of voluntary disclosure may soon be a thing of the past. At the end of March, the US Securities and Exchange Commission (SEC) gave preliminary approval (paywall) for new rules for climate disclosure. If established, the regulation will require public companies to tell investors and the federal government how the changing climate poses material risks to their operations. It could also force those companies to disclose their greenhouse gas emissions.
For now, the rules that are coming down the tube will go to companies that sell stock to the public and are regulated by the SEC. But I don’t think they will stop there.
The first salvo for the required climate disclosure
The federal regulator has said the proposed rules comparable to those that many companies already offer voluntarily. Many companies that have chosen to share climate-related information do so under a reporting framework created by the Task Force on Climate-Related Financial Disclosures (TCFD), a branch of the Swiss-based oversight body for the global financial system. , the Financial Stability Board. In his statement after approving the new climate disclosure reporting rules, SEC chairman Gary Gensler said his agency had found that one-third of the nearly 7,000 annual reports filed by public companies contained disclosures related to climate change.
My company, Green Places, actively monitors the changing regulatory landscape to help our customers achieve their sustainability goals – not just to comply, but to make life better for people and the planet. From that point of view, we delved into the proposed SEC regulation and TCFD Proposed Disclosures. I think it’s clear that with this latest move by the SEC, the writing is on the wall. We advise all our customers, not just public companies, to pay attention.
It seems likely that all companies will eventually have to report their GHG emissions data. In my opinion, it is best to get ahead of the regulations and start now. Forward-looking executives can start by measuring their organization’s emissions footprint (if they haven’t already) to know where to start. This vision stems from extensive experience advising clients on building sustainability and compliance programs. My perspective is that more government agencies than just the SEC are likely to look at the TCFD’s reporting standards as regulators start demanding climate data from all companies.
A first for private companies
I’ve worked with many smaller, private companies—law firms, restaurant groups, and technology developers, to name a few—to pursue voluntary climate reporting. Perhaps they are on a sustainability journey for personal reasons, or they see the benefits of being transparent and green for investors, recruiters and customers. Whatever the individual basis, there are now many reasons not to delay reporting a company’s climate-related disclosures.
So, for anyone in a public or private business considering becoming the pet of a climate reporting teacher, let’s take a look at what it means to release this kind of information. The TCFD has developed easy-to-understand standards that fall into four categories: governance, strategy, risk management, and metrics and goals. Here are some questions I ask business leaders based on TCFD recommendations within each category.
• What is your board’s oversight and your management’s role in assessing and managing climate-related risks and opportunities?
• What are your organization’s climate-related risks and opportunities and how can they affect business operations, strategy and planning?
• How resilient is your organization to different climate change scenarios, from the least to the most disruptive, based on current science?
• How will your organization identify, assess and manage risks from climate change? How is this process integrated into the rest of your risk management planning?
Statistics and Goals
• What metrics can you use to properly assess climate-related risks and opportunities?
• To look outside emissions coming from your own operations. What emissions are generated on behalf of your company from electricity generation, supply chains, business travel or purchased goods?
I think the SEC’s move is a clear signal that environmental reporting is shifting from something nice for companies to an activity required by authorities. But no one need worry about this coming change.
It’s within reach for any business, regardless of size, to understand and manage how climate change creates business risks and opportunities. Asking these questions about your business is a critical first step.