In March 2022, the US Securities and Exchange Commission (SEC) published a draft proposal for climate-related reporting standards for public companies. The proposal aims to establish consistent and comparable disclosures on climate risks and greenhouse gas (GHG) emissions, including those related to supply chains. As of the end of December 2023, the rules are still pending. Nevertheless, companies should aim to future-proof their business today in anticipation of the SEC standards and similar provisions in other jurisdictions such as California.
IntegrityNext has a strong track record of assisting companies in meeting the due diligence and reporting requirements of a wide range of legislative initiatives. We also support our clients in collecting supplier-specific emissions data, both at the corporate and product level, while monitoring their suppliers' climate change mitigation efforts. Our efficient and user-friendly platform allows you to compile supplier emissions data and identify material supply chain risks with minimal effort.
Benefits of the IntegrityNext Solution
We continuously monitor regulatory developments across different regions and sectors to provide our clients with timely and tailored solutions. While certain aspects of the SEC rulebook are still under discussion and a final version is not yet available, GHG emissions – including material Scope 3 emissions from upstream and downstream activities in value chains – are likely to assume a key role.
Adherence to the proposed guidelines poses a significant challenge for many companies. The collection of high-quality emissions data from suppliers can be a complex and resource-intensive endeavor. Companies should therefore address the topic proactively and set up the necessary systems and processes today to align with upcoming regulatory provisions. The IntegrityNext platform can provide vital support on this journey.
Comprehensive ESG risk analysis and management for your supply chain
Collection of corporate-level GHG emissions data for Scopes 1, 2 and 3 (Corporate Carbon Footprint)
Collection of product-level GHG emissions data (Product Carbon Footprint)
Monitoring of suppliers’ decarbonization efforts
Retrieval of SBTi-aligned supplier engagement targets (Science Based Targets initiative)
Seamless integration into your IT systems
Goals of the SEC Climate Disclosure Rules
The SEC's proposed rules are based on the voluntary framework established by the Task Force on Climate-Related Financial Disclosures (TCFD), widely adopted by companies and legislators around the globe. As current reporting practices are frequently fragmented, inconsistent and insufficient, the SEC aims to standardize climate-related disclosures and provide investors with reliable and comparable information about companies’ climate-related risks.
The SEC’s proposal marks a step change in US corporate climate accountability as it seeks to align domestic rules with international standards and regulatory developments. As such, the requirement to report all material Scope 1, 2 and 3 emissions will result in greater harmonization with legal obligations in market such as California (see Senate Bills 253 and 261) and Europe (see reporting standards laid down in the Corporate Sustainability Reporting Directive (CSRD)).
The proposal’s key obligations
The SEC rule amendments will require both domestic and foreign registrants to include relevant climate-related information in their registration statements and periodic reports. This concerns disclosures on the following aspects (not exhaustive):
Processes for identifying, assessing, and managing climate-related risks and integration into overall risk management system or processes.
Material short-, medium- and long-term impacts of climate-related risks on the business model, strategy, and outlook.
Oversight and governance of climate-related risks by the board and management.
Mandatory disclosure of Scope 1 and 2 emissions. Scope 3 emissions are required “if material or if the registrant has set a GHG emissions reduction target or goal that includes its Scope 3 emissions”.
Climate change mitigation
Climate-related targets and goals, and transition plan, if available.
Impact of climate-related events and transition activities on line items of consolidated financial statements, related expenditures, and financial estimates and assumptions.
Who is affected?
The SEC standards will primarily apply to larger businesses. Initially, they will be mandatory for all publicly traded companies that are already subject to SEC reporting requirements. Non-US companies with stocks traded in the US that currently submit Form 20-F files, a reporting requirement for foreign issuers of securities, are also going to be affected.
If the SEC decides to make Scope 3 emissions disclosure compulsory, smaller enterprises along the registrants’ value chains may also be compelled to provide relevant data to help fulfill the reporting obligations of their business partners.
The status quo of the SEC Climate Disclosure Rules
Initially projected for release in June 2023, the final rules are now likely to be released in the first or second quarter of 2024. However, further delays are still possible.