Get your Board of Directors ready to tackle SEC Climate Change Disclosure Regulations
The SEC is expected to release new climate change disclosure regulations in November 2022. Your company’s Board of Directors needs to effectively oversee climate change risk and new regulatory disclosures.
Which begs the question: are they ready?
To be ready, Boards require:
- The best information available on probable climate impacts
- Preparedness for increased disclosures
- Governance structures that support these new demands.
Insight
Climate risk is real for companies across almost all sectors. So are potential opportunities to innovate with new products and services and to reconfigure supply chains and partnerships.
To get a handle on the near- and medium-term financial and operational risks, directors need a solid understanding of climate change, one that goes well beyond what’s covered in standard media and IPCC summary reports. They’ll need to address these questions:
- What do models indicate for the risk of disruptions in the companies supply chain, transit routes or client base?
- How can the company capture innovation opportunities?
- Is the innovation process ready for this new challenge?
Drafts of SEC regulations suggest that Boards should designate a Climate Expert, either an internal resource or an external advisor. If you designed a Climate Expert, triple-check that he or she is truly an expert, not just a generic ESG consultant. Companies require region-specific and up to date data, much more granular than that which is commonly available.
Governance
New SEC reporting requirements are expected to require a heavy lift across many parts of a company to perform data gathering and analysis. The Board needs to get comfortable with this new level of disclosure.
This increased disclosure leaves nowhere to hide for companies that have not yet adopted advanced climate change goals or set appropriate goals.
If your company has:
- Not yet published voluntary greenhouse gas disclosures or reduction goals, it’s time to get the Board ready for and comfortable with the need to disclose more on the Form 10-K. Executives need Board support to move quickly and prepare immediately.
- Aspirational greenhouse-gas reduction goals but has not done much work to advance towards these goals, the Board needs to see an updated plan to dial up activities.
- Goals in line with science-based targets and progress towards significant milestones, the Board needs to be ready for any additional disclosures required by the SEC regulation.
The Board may need to update its governance structure and ensure that the roles are clearly defined. Do the roles and responsibilities of the board committees that oversee climate risk need to be revisited? Does this responsibility reside with the best committee?
For example, If the Governance Committee has general environmental, social and governance (ESG) oversight, climate risk might be added to this committee’s mandate. If so, what role will the Audit Committee play under this new regulation?
Regardless of committee structures, most boards will find that they need to change their meeting agendas to ensure regular reports to the full board and at the committee level. We recommend that climate risk be on the Board Meeting agenda at least twice a year, so that the committees and executives can keep the entire board updated.
Summary
Changing investor expectations and new regulations in the United States, Europe and elsewhere are driving new disclosure needs.
Boards need to prepare for this. But this is only a fraction of the effort required.
An effective Board will oversee and guide the company to manage the risks and opportunities inherent to climate change, since these risks and opportunities directly impact the company’s financial performance.
It’s time to make sure that your Board is ready for this new agenda.
Take 5 Steps NOW to Prepare for SEC Climate Change Disclosure Rules
The SEC plans to release its plans for corporate climate disclosures in November. For companies, now is not the time to sit on your hands and wait!
This will be the first time ever that the SEC requires disclosure of air emissions, climate impacts
and associated business risks. It’s a massive endeavor, even if your company already reports voluntarily or gathers climate-related data for internal use. (Preparing your Board of Directors is a critical component of getting ready, a topic I’ll cover separately.)
To start in advance of the November announcement, take these five steps:
1. Get the team ready.
The team will require, at a minimum: internal audit, legal, reporting, investor relations, and sustainability. Who is the executive sponsor? We recommend an executive-level
steering committee to facilitate communications with the executive team and board. Start by mapping out roles and responsibilities to identify any gaps that need to be filled. Do you have a climate risk expert? Do you need one?
2. Secure the required resources.
What resources are required for internal and external support, data collection and any new systems, review of policies, strategies and goals, materiality assessments, and other needs?
3. Review public and internal goals, targets and scenarios
Companies with ambitious carbon-reduction goals that have yet to make big progress will need to prepare for ramping up activity towards the goals.
Companies without goals will need to set them. Expect a robust goal-setting process to take about four to six months. And companies somewhere in the middle need to review and refine milestones towards goals. What is the trajectory for meeting milestones? What is the evidence of progress?
4. Ready the systems for robust data collection.
The SEC climate disclosures are fundamentally a data exercise. What systems are in place to collect and validate the data? Before jumping into buying new systems, document the procedures currently in place. Perform a gap analysis before acquiring any new system.
5. Review materiality processes.
How has the company historically measured materiality and potential risks? Document all assessments, the processes used, and leverage lessons learned. The most important step is to identify any disconnects between reviews and how the company would report on climate risks.
Timing and preparedness are critical to preparing a Form 10-K filing that reflects your company in the way you want it to. With so many moving parts, it requires cross-organizational collaboration and documentation of current systems.
No time like the present.
Sustainable shopping is healthy, even amid a pandemic
As sustainability professionals, we’ve been talking for years about how consumers are increasingly influenced by values and sustainability. We search the data for proof points that people would prefer to buy from a more sustainable company. Indeed, even when we find the proof points, we also find a large action gap between what people say and what they do.
We think the action gap is about to get smaller, due to a set of trends and the context of the pandemic.
The pandemic has shaken the mental health and emotional well-being of people everywhere. It also has caused many people to consider more carefully what they value most …
Continue reading this guest blog on GreenBiz.
Do consumers reward companies for their climate leadership?
Most sustainability practitioners believe customers will reward a company for doing the right thing. We know it’s a complex story and that price, accessibility of product and perceived efficacy all affect shoppers’ choices. In general, however, we trust that customers will pick sustainable solutions if they are easy to find and price differences are negligible.
And there is evidence that consumers do prefer to buy sustainable products. NYU Stern’s landmark study found that 50 percent of CPG growth from 2013 to 2018 came from sustainability-marketed products. The study is based on what consumers actually bought — not what they said they would do.
Continue reading this guest blog on GreenBiz.
When shoppers return, will they choose green?
By Diane Osgood
Consumers are spooked.
Record unemployment, continued levels of lockdown in many places and general uncertainty have most of us startled and longing for certainty. No wonder that we’ve seen plunges in consumer spending and confidence around the world.
Once consumption resumes, will people make choices to support a more sustainable economy?
In conversations among fellow sustainability leaders, I often hear optimism that shoppers will make decisions based on how companies behaved during the coronavirus pandemic. There is hope that shoppers will remember which companies treated their employees well and stepped up to provide technical or financial support during the pandemic …
Continue reading this guest blog at Green Biz.
It’s urgent to reshape our economy towards justice and sustainability
By Diane Osgood
Right now, talking about shopping can seem trite.
Yet, to address systemic racism, we need a more just economy. An economy slanted towards white ownership plus discriminatory labor practices perpetuate systemic racism.
As discussed in earlier columns (here and here), consumer demand drives 70 percent of the economy. Consumers and citizens have significant influence over the shape of the economy because we — in aggregate — ultimately control almost 70 percent of it …
Continue reading this guest blog on GreenBiz.
Why sustainability professionals should drive green consumerism
By Diane Osgood
Most people’s wallets are slammed shut right now, and an unthinkable number of people face unemployment and loss of business. The coronavirus pandemic offers a painful and unique opportunity to re-envision the economy we want and how we get there.
Business is driven by consumer demand. When there is a great demand, business expands. When there is little demand, business contracts. Government policy aside, this is what shapes the economy.
The good news is that the majority of U.S. consumers want to buy purpose-driven brands that support sustainability. However, despite our intentions …
Continue reading this guest blog on Green Biz.
Insights from green banking: What keeps customers from switching banks?
By Diane Osgood
ESG may be all the rage, but what about retail banking?
The deposits you make at your retail bank for personal and business accounts sustain the bank’s ability to make loans and investments. Loans and investment fuel growth. Put simply, a bank’s capital can flow towards fossil fuels or renewable energy, towards local business loans or financing environmentally damaging projects …
Continue reading this guest blog on GreenBiz.
After the pandemic, achieving better sustainability requires new materiality tools
By Diane Osgood
A materiality analysis for sustainability provides insights on business risks, opportunities and future trends that influence a company’s ability to create value. It tells you what’s important to internal and external stakeholders.
Next-generation materiality tools make it possible to access stakeholder views in a more comprehensive and affordable manner than before. These flexible tools can be deployed rapidly, enabling you to quickly assess the changing landscape to provide:
- A finger on the pulse of how society’s, employees’ and stakeholders’ views are shifting during the pandemic.
- A more in-depth analysis for impactful sustainability strategies.
Purpose drives companies to leadership
By Diane Osgood
Purpose-driven companies have a North Star that guides them.
That North Star shines bright even in these fluid, turbulent times.
In tough times, “analysis paralysis” too often hijacks decision-making. We want more information. We want more data. We want more direction from political leaders. We want more clarity about what our customers need.
Companies that are purpose-driven find ways beyond the paralysis. More …
What it takes to create shareholder value and employee engagement
This is the first in a series of blogs that explores the value of meaningful purpose, strategic sustainability and material Environment, Social and Governance (ESG) management.
By Diane Osgood
Over the past 25 years I have witnessed companies embrace purpose, sustainability and ESG to create value for shareholders and employees.
However, it takes more than a cursory effort for a company to outperform. Purpose must be meaningful to gain employee buy-in. Sustainability must be strategic and ESG material. More …