The SEC’s Climate Disclosure Push: Key Considerations for Shareholder Communications

The SEC recently proposed meaningful disclosure requirements that would compel companies to outline climate-related risks and risk management processes, including additional detail around financial metrics, underlying targets and transition plans. Collectively, this new framework changes the ESG communications landscape – both for companies that have established a leadership position on this critical issue as well as for those in the early stages of their climate journey.

Companies that have yet to issue net zero targets may feel the pressure of falling behind as the SEC introduces a baseline standard for disclosure around direct Scope 1 emissions (vehicles and facilities) and indirect Scope 2 emissions (purchased energy/electricity). However, even for companies that have already taken a more aggressive approach to emissions tracking, the SEC’s introduction of the “materiality” and third-party verification requirement for the difficult-to-track indirect Scope 3 emissions (travel, investments, leased assets and more) adds significant complexity for communicating the realities of today’s global value chains.

The SEC’s proposed disclosure requirement changes mark a notable shift to more closely align with the expectations of the investment community today. This is a moment for ESG and investor relations leaders to take a step back and consider opportunities to improve both tracking and disclosure. Shareholders (and lenders) recognize that the journey to net zero emissions is a complicated, and expensive, process, but also critical to managing risk and ensuring long-term success as investment mandates evolve.

Three principles for investor relations and corporate communications leaders to keep in mind:

  1. It is ok to acknowledge challenges and shortfalls: Shareholders prefer candid dialogue to greenwashing and bluster. It is essential that ESG communications acknowledge gaps, challenges and shortcomings, and provide a climate transition plan with actionable steps toward improvement, while ensuring that the data by which they will be measured is verified by a third-party. Climate transition is an evolving process, and any communication should reflect a commitment to continuous learning and alignment with best practices to achieve overarching goals. Be proactive and own your message.
  2. Engage directly with the stakeholders that matter most: Any new disclosure commitment will underpin each company’s broader ESG story. Investors are certainly a gateway audience on critical climate disclosure matters, but employees, customers and suppliers must not be overlooked. Investor relations and communications professionals should consider opportunities to distill the narrative from what is detailed in the requisite 10-K by preparing teams with tools, concise fact sheets and digital content that explain the company’s position.
  3. Benchmark current efforts and track progress: Review current practices among both industry peers and aspirational leaders driving ESG transformation. Consider what tools peers are employing, as well as specific targets, timing and language used to describe commitments. Establishing a comprehensive baseline will provide critical insight in tracking progress, particularly as industry practices rapidly evolve.

While the SEC’s final climate disclosure rule would not be adopted until December 2022 (following a public comment period), investor relations, corporate communications and sustainability teams must work swiftly to review existing policies and monitoring frameworks and develop plans that account for the evolution in policy and align with industry expectations.

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