Environment, Social, and Governance (ESG) has become the new standard for business excellence. To help businesses capitalize on ESG opportunities and develop effective ESG programs, VelocityEHS hosted a Virtual ESG Conference earlier this month to educate businesses and EHS professionals on a variety of ESG management topics and best practices.
Among our Virtual ESG Conference sessions, VelocityEHS was excited to welcome Jessica Pransky, Principal Analyst for ESG & Sustainability at Verdantix alongside our very own Blake McGowan, CPE and Director of Research at VelocityEHS to offer a close-up look at the US Securities and Exchange Commission (SEC) proposed rule on The Enhancement and Standardization of Climate-Related Disclosures for Investors, a rule that would create new financial and climate risk disclosure requirements for publicly traded companies in the United States.
Ms. Pransky led the session off with a brief discussion on the importance of greenhouse gas (GHG) emission monitoring and reporting as a key component of climate risk assessment and disclosure and its integral role in compliance with the proposed SEC rule. She also discussed some key results from the recent Verdantix Global Corporate Survey 2022: ESG & Sustainability Budgets, Priorities and Tech Preferences which interviewed 400 senior corporate executives responsible for ESG and sustainability to assess their firms’ budgets, priorities, and tech preferences. The results provided an enlightening view of the current landscape of ESG management and the approaches leading businesses are taking toward ESG.
For further discussion of the survey results, view the session recording on-demand.
Proposed SEC Climate Disclosure Rule
The central topic of discussion was the SEC proposed rule, which if finalized, will establish substantial ESG and climate disclosure requirements for businesses across the US up and down the supply chain. The SEC proposed rule will apply to all publicly traded companies and require them to disclose relevant climate-related risks, GHG emissions monitoring data, climate risk reduction targets, and other ESG information as part of their 10-K and other financial disclosures.
Some examples of data that US publicly traded companies must produce and disclose under the SEC final rule includes Scope 1 and Scope 2 GHG emissions, per the UN Greenhouse Gas Protocol, as well as information about their internal carbon pricing/cost of carbon, climate-related risks, targets and goals, and climate risk management processes. In addition, certain companies will be required to disclose their Scope 3 GHG emissions and may be subject to 3rd party auditing of their disclosure data.
The important takeaway from this, according to Pransky, is that the ESG data as part of the required disclosure will be held to the same standards as other financial data traditionally disclosed on the SEC 10-K, meaning that it must be “investor grade” data. According to Forbes Magazine, “investment-grade ESG data must be accurate, timely, consistent, complete, auditable, and above all, relevant.”
This high standard for ESG disclosure data presents companies covered under the proposed SEC rule with another challenge. How do they collect, analyze and report the required data? What systems are required to do so?
The Role of ESG Software in SEC Reporting
Pransky then moved into the final segment of the session discussing what data collection and processing requirements will be established under the new SEC rule and the software system requirements for delivering “investor grade” reporting data. She called out key ESG reporting software capabilities that will be instrumental to compliance with the proposed regulations, including:
- GHG emissions monitoring and analysis
- ESG materiality assessments
- Cross-departmental/multi-location collaboration functionally
- Climate risk assessment and analysis
- Carbon pricing
- Preparing disclosure documentation
- 3rd party attestation & auditing
The big message here is that software is truly necessary to meet the new SEC reporting requirements. Think of it this way—you wouldn’t perform and document all of your normal financial recordkeeping manually, or even with simple spreadsheets. It requires more sophisticated, purpose-built software functionality to achieve the level of accuracy and data quality required for SEC financial disclosures, and soon, ESG disclosure data will require that same level of accuracy and quality. Software is a must.
Final Notes
Ms. Pransky had some parting advice for session attendees, and recommended the following:
- Prepare for the upcoming SEC climate disclosure regulations. The forthcoming requirements are likely to reflect the proposed requirements already published. Slight variations may be made from the proposed rule, but the final rule will be largely similar.
- Perform GHG emissions calculations across your supply chain. Most businesses affected by the SEC rule will be required to, at a minimum, perform Scope 1 & 2 emissions calculations, and larger companies will likely be required to also quantify Scope 3 emissions. Even if you are not covered under the proposed rule, GHG emissions accounting as part of an overall ESG program is now considered best practice.
- Think about how to identify, document, and assess climate risks. What risks could your operations create for the climate, and what risks could your business face because of potential climate change? Could water scarcity impact your operations? Would your emissions pose potential risks to the local environment? How are you addressing these? These are more than just abstract concepts to think about, they are real risks that the SEC rule may require you to quantify, so it’s important to have systems, strategies, and personnel in place to document this information.
To watch the full session and get the full story, watch the recording on-demand.
VelocityEHS Can Help!
Our ESG Solution, part of the VelocityEHS Accelerate® Platform, makes it easy for businesses like yours to collect, analyze and document Scope 1, 2 & 3 GHG emissions required under the forthcoming SEC regulations, streamline your ESG materiality assessments and improve your ESG performance right out of the box. Additional capabilities allow you to centralize your view of climate-related risks, and perform a vast range of other EHS & ESG program functions to help you build the ESG program that will take your organization into a sustainable future.
Contact us today to learn more about how we can help you to improve your EHS & ESG programs.