The impact of climate change has become much more noticeable in recent times, from increased natural disasters to a noted rise in overall temperature. While we often think of climate change in terms of the risk it poses for polar bears or the broader ecology, it also represents a significant threat to business. Increased natural disasters can impact infrastructure and buildings, while changes in weather patterns can influence energy consumption and lead to substantial losses in agricultural production. And this is just the tip of the melting iceberg.
If you fail to disclose the impact of climate change on your business, this can lead to poor investment decisions, asset losses, and the continuation of trade practices that further perpetuate climate change.
Running a business today means considering all aspects of your environmental impact. The US Securities and Exchange Commission's (SEC) new climate disclosure rule recognizes this reality. Here's what you need to know to be prepared, as well as some ways Syft can help you out.
A bit of background
After nearly two years of consideration, the SEC has adopted a new rule on climate-related disclosures: The Enhancement and Standardization of Climate-Related Disclosures for Investors. Sue Coffey, CPA, CGMA, AICPA & CIMA’s CEO–Public Accounting says:
“The SEC’s action today brings much-needed clarity for businesses and investors on climate-related information and the reporting disclosures required of U.S. companies.”
As she explains, investors, lenders, and others want clear and reliable information from businesses regarding climate-related issues. Many companies are already sharing their goals and data voluntarily. The new SEC rule helps make this reporting more consistent, comparable, and high-quality, meeting the demands of capital markets.
So, what does this mean in practical terms? Let's have a look.
What are you required to disclose?
There's a lot contained within this new rule, but the information companies are required to disclose can be broken down into the following categories:
Climate risks: How climate change could hurt your business (e.g., extreme weather impacting factories).
Financial impacts: How these risks could affect your profits and future plans.
Actions you're taking: What you're doing to address climate risks (e.g., reducing emissions, using renewable energy).
Costs and benefits: How much these actions cost and how they might affect your finances.
Board oversight: How your leadership is involved in managing climate issues.
Climate goals: Any targets you have for reducing emissions or becoming more sustainable.
Financial impacts of weather events: How extreme weather has affected your business financially.
Costs of climate solutions: How much you're spending on things such as carbon offsets or renewable energy.
In essence, the new SEC rule requires companies to be more transparent about how climate change affects their business and what they're doing about it.
It's also worth noting that this new rule requires disclosures to be filed with the SEC, not just posted.
How the SEC's new rule compares to similar practices elsewhere in the world
The SEC's new rule is a step towards more standardized climate reporting, but it's not as strict as other existing rules around the world. Let's take a look at how it stacks up.
The SEC Rule:
Requires the disclosure of certain climate risks and some greenhouse gas emissions (Scopes 1 & 2) for large companies only.
Doesn't require reporting on emissions from a company's entire supply chain (Scope 3), which can be significant.
Gives companies some flexibility in reporting details.
Other countries:
Some countries, such as the UK and New Zealand, mandate broader reporting, including Scope 3 emissions.
The European Union (EU) has a similar rule coming into effect soon.
These rules often require more specific details and assurance by independent auditors.
In simpler terms:
The SEC rule is a good first step, but it doesn't give investors as complete a picture as some other countries.
Think of it like the US asking companies to report on the gas they use in their own buildings (Scopes 1 & 2), while the EU might ask them to report on all the gas used to make their products, including from suppliers (Scope 3).
The takeaway:
The SEC rule is moving the US in the same direction as some other countries but with a lighter touch for now. This might change in the future to align with stricter international standards.
Note 📝: The SEC is still finalizing some aspects of the rule, so stay tuned for updates in the future.
Why is this important?
The SEC's new climate disclosure rule is important for a few key reasons:
Better information for investors: Investors can make more informed decisions about the companies they invest in. They'll understand how climate change might risk a company's profits or how a company's actions on climate could serve as an opportunity to be seized.
Push for climate action: Requiring companies to disclose climate risks and their plans puts pressure on them to take action. Investors may be less likely to invest in companies that do not address climate change.
Standardization and comparability: Having a standard format for disclosures makes it easier for investors to compare different companies' climate strategies.
Transparency and accountability: Companies will be accountable for their climate impact. This could lead to more sustainable business practices overall.
Overall, the rule is a step towards a more climate-conscious financial market. It helps investors make informed decisions and encourages companies to be more responsible about their climate impact.
For the full details of the SEC's rule, read their press release.
How Syft can help
Syft's Connection tool empowers you to add non-financial data, such as greenhouse gas emissions, to reports. You have a few options when it comes to adding this data, namely:
Manually inputting figures on Syft;
Using the Excel or Google Sheets Connector to import data from existing spreadsheets; or
Leveraging the Zapier integration to connect other third-party applications to Syft and pull in sustainability data from there.
Once you've uploaded your environmental data to Syft, you can begin analyzing and visualizing it or adding it to reports. The automation of tools such as the Connector means that you can save a lot of time on sustainability reporting while also ensuring the accuracy of your numbers.
Pro Tip 💡: If you use the Connector to import data, you'll see we have a number of templates you can choose from to format your data, one of which is "Energy."
The Energy template includes the following categories:
Energy generation: The amount of energy produced by a company. This metric can indicate how successful a company is at utilizing its resources and meeting customer demand.
Capacity factor: The ratio of actual energy output to the maximum possible output. This metric can indicate how well a company's energy-generating assets are utilized.
Energy consumption: The amount of energy consumed by a company or its customers. This metric can indicate how successful a company is at promoting energy efficiency and reducing waste.
Renewable energy percentage: The percentage of energy produced by a company that comes from renewable sources. This metric can indicate how successful a company is at incorporating renewable energy into its operations and meeting environmental goals.
Carbon emissions: The amount of carbon dioxide (CO2) emitted by a company. This metric can indicate how successful a company is at reducing its environmental impact and meeting sustainability goals.
Safety performance: The number and severity of safety incidents. This metric can indicate how well a company is protecting the safety of its employees and customers.
Maintenance performance: The number of equipment failures and the time it takes to repair them. This metric can indicate how well a company maintains its equipment and ensures that it is operating efficiently.
Customer satisfaction: Measured through surveys or other methods, this metric is a key indicator of a company's performance and how well it is meeting its customers' needs.
Net Promoter Score (NPS): This measures how likely customers are to recommend the company. It is a great indicator of customer satisfaction, loyalty, and advocacy. NPS is based on responses to a single question: How likely is it that you would recommend our company/product/service to a friend or colleague?
Compliance flags: Measured by the company's adherence to regulations, industry standards, and laws, this metric can indicate the company's ability to operate within legal and ethical boundaries.
Closing thoughts
The SEC's new climate disclosure rule is an evolving landscape, but understanding the basics is crucial for businesses of all sizes. By familiarizing yourself with the reporting requirements and exploring solutions like Syft, you can ensure your business is prepared to navigate this changing regulatory environment. Proactive companies that embrace sustainability not only comply with regulations but position themselves as leaders in a climate-conscious future.