A Letter from 3R Leadership

The SEC’s Proposal for Climate-Related Disclosures

Published: 03/23/2022

 

On Monday, the SEC released its long-awaited proposal for Climate-Related Disclosures.  The intent of this proposal is to provide “consistent, comparable, and reliable” climate-related data for investors to use, while attempting to limit the compliance burden on reporting companies.  This proposal applies directly to public companies, as well as private companies which have publicly traded clients, as these public companies begin to account for their Scope 3 emissions (supply chain). 

There is good news: 

  1. We can work with you to prepare this data and analysis to respond to investor and customer questionnaires, so you will be ready for the SEC reporting when it takes effect 
  2. This drive toward standardization by the SEC could end up simplifying the multiple requests you get today from investors, customers, and other stakeholders 

The SEC is attempting to drive toward a level of standardization in climate-related disclosures focusing on two methodologies/reporting frameworks: Greenhouse Gas Protocol (methodology for greenhouse gas inventory calculation) and Task Force on Climate-Related Financial Disclosures (TCFD). TCFD provides a framework to evaluate material climate-related risks and opportunities with short-, medium- and long-term financial impacts on your business.  The framework includes eleven disclosure topics related to four themes to assess, manage, and disclose climate-related financial risks: governance, strategy, risk management, and metrics and targets.  

The SEC is focused on reporting for Scope 1+2 emissions, as well as Scope 3, if material to your organization and/or included in your Greenhouse Gas reduction targets. To determine if Scope 3 emissions are material to your organization, a Scope 3 screening is needed to understand which categories represent the greatest emissions.  This proposed rule also has ramifications on those seeking recognition under the Science Based Target initiative (SBTi) program as SBTI requires scope 3 to be included in reduction targets for many industries. Companies who provide Scope 3 estimates would not be held liable for those estimates if they were created in good faith. Public companies below $250 million in publicly traded shares are exempt from Scope 3 requirements. 

If the proposed disclosures go into effect by December 2022, the compliance dates to have the proposed disclosures included in annual financial reports would be:

  • For large, accelerated filers: Fiscal year 2023 data reported in 2024 filings* 
  • For accelerated and non-accelerated filers: Fiscal year 2024 data reported in 2025 filings* 

*Companies subject to the proposed Scope 3 disclosure requirements would have one additional year to comply with those disclosure requirements 

How 3R can help

3R has been working under the assumption that a climate-related requirement was on the horizon from the SEC, as it builds upon the requests many of our clients have been seeing from their customers and investors. 3R frequently works with the TCFD and GHG Protocol frameworks already, so you are well positioned to meet the reporting requirements, once they take effect if you work with 3R.

With many of our clients, we have begun to assess climate-related risks and opportunities by leveraging any existing analysis and incorporating it into enterprise risk management processes.  This serves as a good first step toward TCFD reporting.  Next, we will build upon this work to develop scenario planning and calculating transition risk. 

We also offer Scope 3 screening. Once we narrow down the top categories, we can help you begin to work with your suppliers to capture actual data needed to calculate your Scope 3 inventory.  

If 3R is not already supporting your Greenhouse Gas inventory or climate related risk management efforts, we can begin supporting these initiatives immediately as you prepare to align your efforts with the newly proposed SEC disclosures and your customer requirements.  

 – Jana Lake, President