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Over the past two decades, climate risk has been increasingly identified as a substantial threat to financial market stability and long-term value. Investors representing more than $130 trillion have been making increasingly forceful requests for Environmental, Social, and Governance (ESG) information, including climate data as a risk assessment tool, giving rise to a burgeoning set of beyond-compliance standards and frameworks, and fragmented data disclosures from those who access climate markets.
In concurrence with the view that more comprehensive and standardized climate data is valuable to overall financial stability, the United States Securities and Exchange Commission (SEC) proposed disclosure rules that would require enhanced disclosures of climate risk information from registered entities. These proposed rules represent the culmination of a decade’s worth of analysis since the SEC first promulgated voluntary climate disclosure guidance in 2010. The proposed rule passed by a 3 to 1 vote on March 21, 2022 and the public comment period on the proposed ruling closed on June 17, 2022. In terms of timeline, the SEC is optimistic that the disclosure rules will be adopted with an effective date of December 2022. A summary of the current proposed rulemaking, including what is proposed, the methodologies mentioned, and the timeline for phasing in requirements, can be found in an April 8 Guidehouse blog post.
The SEC ruling will change the landscape of climate-related disclosures for all public companies, but investor-owned utilities may see some of the greatest impacts, because your business is built on selling a carbon-based product. Climate risk has a central relationship to a utility’s business strategy.
In addition, utilities have been disclosing portions of their greenhouse gas (GHG) emissions footprint for decades to various reporting agencies, such as the US Environmental Protection Agency. With a historical record of GHG emissions disclosures, investor-owned utilities will need to be particularly careful as they construct their governance process to meet the final SEC requirements on climate-related risks, that their disclosures align with their published historical record.
Now that the public comment period has closed, the SEC is expected to issue its final rules and its enforcement date. Although the timeline for a final rulemaking remains uncertain, the SEC’s disclosure timelines assume a December 2022 date for the final rule to take effect.
As a leader, there are things that you can start doing to ensure that your company is prepared to meet the new SEC requirements.
Compliance with the SEC climate-related risk disclosure may seem daunting today, but with a thorough assessment of your internal governance processes and education of key decision makers, it is possible to ensure that these disclosure requirements can be effectively managed by your organization.
Guidehouse is a global consultancy providing advisory, digital, and managed services to the commercial and public sectors. Purpose-built to serve the national security, financial services, healthcare, energy, and infrastructure industries, the firm collaborates with leaders to outwit complexity and achieve transformational changes that meaningfully shape the future.