The Securities and Exchange Commission (SEC) adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. In essence, companies will be required to report climate risks and greenhouse gas emissions.
Specifically, the final rules will require a registrant to disclose:
- Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition;
- The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook;
- If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;
- Specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices;
- Any oversight by the board of directors of climate-related risks and any role by management in assessing and managing the registrant’s material climate-related risks;
- Any processes the registrant has for identifying, assessing, and managing material climate-related risks and, if the registrant is managing those risks, whether and how any such processes are integrated into the registrant’s overall risk management system or processes;
- Information about a registrant’s climate-related targets or goals, if any, that have materially affected or are reasonably likely to materially affect the registrant’s business, results of operations, or financial condition. Disclosures would include material expenditures and material impacts on financial estimates and assumptions as a direct result of the target or goal or actions taken to make progress toward meeting such target or goal;
- For large accelerated filers (LAFs) and accelerated filers (AFs) that are not otherwise exempted, information about material Scope 1 emissions and/or Scope 2 emissions;
- For those required to disclose Scope 1 and/or Scope 2 emissions, an assurance report at the limited assurance level, which, for an LAF, following an additional transition period, will be at the reasonable assurance level;
- The capitalized costs, expenditures expensed, charges, and losses incurred as a result of severe weather events and other natural conditions, such as hurricanes, tornadoes, flooding, drought, wildfires, extreme temperatures, and sea level rise, subject to applicable one percent and de minimis disclosure thresholds, disclosed in a note to the financial statements;
- The capitalized costs, expenditures expensed, and losses related to carbon offsets and renewable energy credits or certificates (RECs) if used as a material component of a registrant’s plans to achieve its disclosed climate-related targets or goals, disclosed in a note to the financial statements; and
- If the estimates and assumptions a registrant uses to produce the financial statements were materially impacted by risks and uncertainties associated with severe weather events and other natural conditions or any disclosed climate-related targets or transition plans, a qualitative description of how the development of such estimates and assumptions was impacted, disclosed in a note to the financial statements.
“This means public companies must now disclose their climate-related risks and activities to mitigate such risks, or face fines, investor withdrawal, and reputational damage,” said Dan Hollenkamp, COO of Toggled. “While some companies may already have been voluntarily tracking their carbon footprint against specific goals, this ruling marks the first-time businesses will be held accountable, causing some to panic and others stymied, not knowing where to begin.
“The good news is smart building technology can offer an easy and straightforward solution,” Hollenkamp continues. “Since ESG reporting comes down to having data on your company’s environmental impact, having analytics integrated into your smart building solution gives organizations an automatic read on their systems’ performance (e.g., heating, ventilation, and air conditioning), to show how much energy they’re consuming and how much they’ve saved (an upwards of 60-80% with smart lighting and tech installations). Whether required to disclose Scope 1 and/or Scope 2 emissions, companies that adopt intelligent building solutions will find themselves better equipped to adhere to the evolving guidelines specific to carbon emissions from building operations.”
For more information, visit the SEC’s website.
