The Securities and Exchange Commission (SEC) proposed a rule that mandates all publicly traded companies, regardless of size, to disclose information about greenhouse gas emissions and climate risks. While many companies are already accounting for or planning to measure scope 1 and 2 emissions, are they prepared to address climate risks and scope 3?
Taking actionable steps today can help you get prepared for tomorrow
Incorporating Scope 3 accounting practices can bring strategic benefits to organizations. Despite the daunting level of detail, starting with 3-5 metrics is a common practice. Small companies can account for waste, business travel and employee commuting, while larger companies can consider additional energy-related activities, transportation, and leased assets. This practice not only helps companies comply with regulations but also identifies energy-intensive activities and inefficiencies in the value chain. Improvement strategies can be deployed to reduce these inefficiencies, resulting in a positive impact on the bottom line and indirect benefits such as reduced commutes and improved employee morale.
To address climate risks, companies should assess their business portfolio against climate change scenarios for physical and transitional risks. Common scenarios include those from the International Energy Agency (IEA) or Greenpeace for transitional risks, and Representative Concentration Pathways (RCP) described by the Intergovernmental Panel on Climate Change (IPCC) for physical climate scenarios. Conducting risk analysis using these scenarios is a common practice to enhance your sustainability reporting effort. Having more transparency and accountability around climate-related risks provides investors with critical information about a company’s exposure, allowing them to make more informed investment decisions.
While still awaiting a clear ruling from the SEC, implementing the above practices can help you get prepared for the expected regulation. This ruling signifies a broader trend toward increased focus on climate-related disclosures and sustainable investing and marks a significant step in transparency and the expectations of corporate reporting.
Adopting non-financial disclosures enables both companies and investors to identify opportunities beyond traditional performance measures and offers management a broader perspective to govern their business.
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