SEC’s final climate rule isn’t effective and is moving through a spate of lawsuits – perhaps more rapidly than many expected. Compliance isn’t imminent, so you don’t really need to make any effort yet, right? Wrong – especially for companies that aren’t already gathering GHG emissions data and evaluating it through the lens of impacts on business.
Keep this in mind:
- US companies are now generally aware that they need to address EU CSRD requirements independent of SEC or other mandates. The first round of CSRD disclosures will be made in 2025 based on 2024 data – climate being only one of the topics covered.
- GHG and climate data – and the related internal controls – must be disclosure quality. If you haven’t ever filled out the GHG Protocol or audited a completed version of it, then you probably don’t appreciate its complexity. Data sources need to be determined and validated before data is entered into the spreadsheet that generates emissions numbers for the disclosures.
- Materiality determinations that drive what is included and excluded from the disclosures are based on conversations that legal, accounting and board members probably haven’t had before. This is especially true for the CSRD’s double materiality. Those internal discussions may not be easy or go smoothly. In the end, those determinations must be disclosure quality.
- Not many CEOs, CFOs or board members would be okay with reporting financials that aren’t appropriately vetted or developed without adequate controls. They won’t be comfortable making unprecedented new disclosures to the SEC without plenty of time for review, validation and consideration.
The uncertainty hasn’t gone away – it has just changed. In terms of the SEC rule, how the litigation will impact the substance or timing of the rule is unknown. We could see a partial remand/vacature of the rule, leaving some parts intact even as the suits wind their way through the courts (we saw that happen in the conflict minerals rule). It would be prudent to prepare for any eventuality rather than be surprised by an unanticipated turn of events and disclosing information that isn’t of adequate quality. If you haven’t been down this path before, you don’t know what difficulties you will encounter or how long it will take to resolve them.
We have numerous resources to help such as guidebooks on materiality assessments, risk identification/reduction and ESG data validation, and checklists on a range of topics, including the EU CSRD, using internal audit and internal controls in ESG matters and identifying/updating climate risks and assumptions. PracticalESG.com members have access to these – and other – resources. If you aren’t a member, sign up now and take advantage of our no-risk “100-Day Promise” – during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.
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