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In today’s world, climate-related disclosures have become a crucial component of corporate governance and investment decisions. As the impact of climate change intensifies, companies and regulators alike are under increasing pressure to provide transparency about their environmental risks and strategies. Key modules to be covered during the upcoming US Certified Sustainability (ESG) Practitioner Program, on September 26-27 & October 1st promise to help C-suite executives and Sustainability Practitioners navigate through the new regulatory landscapes for Sustainability (ESG) strategy, reporting and trends.
Climate disclosures not only help businesses mitigate risks but also empower investors to make informed decisions. In this blog, we explore the importance of climate disclosure, its regulatory landscape, and the legal challenges it faces in the United States.
The Rise of Climate Disclosure
The need for businesses to disclose climate-related risks has gained momentum globally, with companies and investors recognizing the financial risks posed by climate change. The U.S. Securities and Exchange Commission (SEC) made a significant move in March 2024 by adopting the Climate Risk Disclosure Rule. This rule mandates that publicly traded companies report their climate risks, including greenhouse gas emissions and the potential financial impacts of climate change. It aims to provide investors with the necessary data to evaluate a company’s resilience in an increasingly decarbonized economy.
Institutional investors managing trillions of dollars in assets have long advocated for standardized climate disclosures. In 2021, the Investor Agenda’s Global Investor Statement to Governments on the Climate Crisis marked a major push for change, with 733 investors managing $52 trillion in assets calling for mandatory climate risk disclosures aligned with the Task Force on Climate-related Financial Disclosures (TCFD), alongside other crucial climate policies. While the final rules have limitations, particularly around scope 3 emissions, and fall short of some international standards, they represent a significant step forward.
Legal Challenges to the SEC’s Climate Rule
While the SEC’s climate disclosure rule has garnered strong support from investors, it has also sparked significant legal opposition. Business groups, conservative states, and advocacy organizations have challenged the SEC’s authority to mandate these disclosures. Critics argue that decisions regarding climate-related risks should be made by company boards, not regulators. They believe the SEC is overstepping its legal bounds and should focus on financial disclosures rather than environmental regulations, which are typically overseen by the Environmental Protection Agency (EPA).
The ongoing litigation surrounding the SEC’s rule will likely determine the future of climate-related corporate disclosures in the U.S. The case has attracted filings from a wide range of stakeholders, including former SEC officials and legal scholars who argue that climate risks are indeed financial risks that fall under the SEC’s jurisdiction.
Global Perspective on Climate Disclosure
While the U.S. grapples with the legal aspects of climate disclosure, other regions are moving ahead with stricter regulations. The European Union, for instance, has implemented the Corporate Sustainability Due Diligence Directive (CSDDD). This directive requires companies to address both environmental and human rights obligations within their supply chains, further emphasizing the global importance of climate disclosures.
The CSDDD represents a significant shift in how businesses approach sustainability. With more companies being held accountable for their environmental impact, the directive aims to ensure that sustainability is at the core of corporate strategy. This global push for transparency highlights the growing recognition that climate-related risks are a critical factor in long-term business success.
The Future of Climate Disclosure
The outcome of the legal battle over the SEC’s climate disclosure rule will have far-reaching implications for corporate governance in the U.S. and beyond. If the rule is upheld, it could set a precedent for stronger climate-related regulations, pushing companies to prioritize sustainability in their operations. On the other hand, if the rule is struck down, it may slow progress toward standardized climate disclosures in the U.S.
Regardless of the legal outcome, the demand for climate-related transparency is unlikely to diminish. Investors and consumers alike are calling for greater accountability from companies regarding their environmental impact. As global regulations continue to evolve, businesses must be prepared to provide clear and consistent data on how they plan to manage climate risks.
How to meet the challenges
Climate disclosure is not just a regulatory requirement; it’s a critical tool for businesses to build resilience and maintain investor confidence in an increasingly climate-conscious world. As both U.S. and global regulators push for greater transparency, companies that proactively embrace climate disclosure will be better positioned to thrive in the future.
For companies, the key to success will be staying ahead of these regulations and aligning their strategies with the growing demand for sustainability. Whether through SEC rules or international mandates, climate-related disclosures are here to stay, and businesses must be ready to meet the challenge.
Always at the forefront of trends, the Center for Sustainability and Excellence is pleased to support organizations, marking more than 19 years in providing high-caliber certified training in Sustainability (ESG) for C-suite executives and Corporate Responsibility managers worldwide.
Leading corporations have applied CSE methodology and actionable tools to improve their sustainability performance and ESG ratings within specific timeframes, as well as achieving their financial goals.
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