I recently joined hundreds of climate, energy, and sustainability thought leaders and decision makers from around the globe at the 2022 Climate Leadership Conference. It’s encouraging to see that so many companies are elevating and integrating ESG.
ESG conversations are happening in corporate boardrooms more than ever before. Prior to the pandemic, these discussions were taking place maybe once a year; now, that engagement is happening at nearly every meeting or, at a minimum, once a quarter. The SEC’s proposed rule on climate-related disclosures is no doubt factoring into this heightened focus. By the end of its public comment period on June 17, the SEC had received thousands of them.
Perhaps the most surprising takeaway from the conference was the level of anxiety I sensed among a majority of those present. Let’s face it, there is much to prepare for and, for those who don’t have a head start, not much time. Companies that do not have a centralized, time-tested system for collecting accurate, timely, complete, financially relevant, and verifiable data likely will not be successful.
Assuming the SEC’s rule is finalized by the end of 2022, companies will be expected to report their 2023 fiscal year data in 2024. That means processes need to be in place sooner…like, now. Anyone juggling spreadsheets without checks and balances in place is going to have an extremely difficult time delivering the quality of data and the level of assurances the SEC is requiring.
Even executives who are already deep into tracking metrics and reporting data seemed concerned about meeting the proposed mandates. Some executives were wondering aloud how they will manage to deliver data in the 60-to-90 day timeframe the 10-K reporting process requires after the end of the fiscal year. Most sustainability programs won’t have their final numbers available in time, which raises the prospect of having to submit incomplete data, and perhaps having to revise it the following year.
The sheer breadth and subjectivity of the proposed rule also presents challenges. Companies face very different ESG issues based on their particular sector or location; there isn’t one set of ESG metrics that applies to all. Adding to the uncertainty, the proposed rule covers climate-related risks that are immaterial now but might be material in the future.
I also heard concerns from executives weighing such variables as differing financial and climate data boundaries. For example, if a company’s financial boundaries include additional facilities or entities that have not previously been considered in scope for their climate reporting boundaries, they’re now going to have to get that data. And with no mechanism in place to obtain and verify that data quickly, companies will be scrambling to meet the requirements and the required deadlines.
As we await the SEC’s final draft, the best advice is to stay tuned and stay tapped in. And in the meantime, check out our events and webinars page. On Thursday, June 30 you’re invited to join our ESG Executive Collaboration Forum. Our panel of subject matter experts will weigh in on how to overcome the very challenges I’ve spelled out here.