The San Antonio chapter hosted our Q2 national meeting, which featured Emily Pierce, formerly of the SEC’s Office of International Affairs and currently the Chief Global Policy Officer at the climate management platform Persefoni.
She fielded questions from Pro Group Executive Advisor Steve Soter about the SEC’s proposed climate disclosure rule. Here are highlights of their Q&A session.
Why is climate entering into disclosures we file with the SEC?
It’s rooted in the SEC’s mission is to protect investors and facilitate fair, transparent, efficient markets, Emily said.
As environmental issues have affected more and more companies’ performance, the SEC’s guidance to issuers has also evolved. But with so many available frameworks for providing environmental disclosures, it’s been difficult for the marketplace to get information in a consistent, comparable, reliable way and time-consuming for issuers to provide it.
“Investors weren’t being fully protected, and the markets weren’t fully efficient. That is, I think, the rationale behind the SEC's proposal,” Emily said.
“The SEC is not regulating climate. The SEC is asking companies to tell their story about how they view climate risk and what, if anything, they're doing about it,” Emily said. “It is an SEC proposal to enhance and standardize climate-related financial disclosures. That's a really important framing to think about what is being asked in the essence of this proposal.”
When will we see a final rule?
The latest “reg flex” agenda from the SEC indicates we’re looking at the second half of 2023. Steve didn’t place a bet on the exact date, but Emily said it could be out by the end of the year.
“Chair Gensler has an agenda and wants to meet those goals, but in terms of timing between now and then, my guess is as good as yours,” Emily said.
The final rule will likely face legal challenges, Emily noted. Steve and Emily both guessed that based on feedback from issuers, the SEC might ease some of its proposals for disclosures of Scope 3 greenhouse gas emissions and its 1% threshold for impacts to financial statement line items that must be disclosed.
But don’t wait to figure out how to provide climate-related disclosures that rating agencies, investors, employees, and customers are seeking, Emily said.
“It would absolutely be unwise to wait for all those questions to be resolved, because the reality is that the market demand that the SEC is responding to is not going away. It's only increasing, and regulation around the globe is just going to further accelerate that market demand,” she said.
Challenges to tackle first
One challenge for issuers will be identifying the right people to discuss how climate is affecting the business, manage risks, and respond strategically, Emily said.
The next challenge will be pulling together data to support climate-related disclosures so they’re ready for regulatory reporting with assurance rather than voluntary reporting. Identify what data you already have, where it lives, and what needs to be enhanced to meet reporting requirements.
The opportunities
The SEC’s proposal presents opportunities not only for companies but also accounting and finance professionals.
Companies that disclose evidence of lower environmental impacts or strategies that account for climate-related risks could win new customers, for example, Emily said.
“The fact that that results in a competitive advantage also bolsters the argument that this information is material for an investor to understand the business prospects of companies,” Emily noted.
Steve and Emily highlighted the important role financial reporting professionals can play in identifying how climate could affect financial statements, whether that’s via asset impairment obligations, contingent liabilities, revenue, or other line items.
“Bringing that perspective to the process is going to be extremely important and something that financial professionals are really well-suited to do,” Emily said.
There’s also an opportunity to bring the rigor of financial reporting to sustainability disclosures.
Accountants apply frameworks and standards to their financial reporting. Applying a framework like the Greenhouse Gas Protocol to reporting emissions should feel familiar.
“Not every company will apply it exactly the same way, but just like in financial reporting, if you disclose how you're applying it, that information still becomes more comparable for investors,” Emily said.
See what peers are saying
Those attending the Q2 meeting in San Antonio also got to hear from Jared Benedict, Managing Director at MorganFranklin Consulting, on the practical application of the SEC proposal, establishing ESG governance, and developing an effective strategy.
One hot topic in San Antonio was headcount for ESG work. "There is a role for technology here in bringing these kinds of issues into your enterprise platforms and reducing the human need for calculations and maintaining the controls,” Emily said. "We really have to bring technology to this space to make it scalable.”
What questions did you discuss at your chapter meeting? Let us know in the discussion thread.
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