The SEC mandatory climate reporting Announcement is an earthquake for ESG

In March 2022, The SEC proposed rules to significantly expand and standardize registrants' climate-related disclosures for investors. The proposed rules would employ mandatory and accurate disclosures in periodic reports and registration statements to address topics related to greenhouse gas (GHG) emissions and global climate change.

While materiality remains a cornerstone for the majority of the proposed rules, certain disclosures—including GHG emissions—are now mandatory regardless of the circumstances.

These disclosures are required to be incorporated into existing SEC filings, rather than a separate climate-focused document. This itself is big news.

The SEC announcement on mandatory Climate Change Disclosures is a wake-up call for directors and boards. Boards need to gain knowledge and tools to deal with ESG. While there are increased risks of incorrect and non-disclosure, Boards need to adopt a holistic or integrated approach to ESG. This needs to be embedded in the core principles of the business.

There is much concern that the SEC proposals and other announcements, and stakeholder (shareholders, staff, and customers) pressure are leaving companies with inadequate time and resources to catch up and implement ESG.

Practically, what does this mean?

Companies need to extract data to measure and report on emissions:

Scope 1 = the emissions from owned or operated assets (for example, the fumes from the tailpipes of a company’s fleet of vehicles)

Scope 2 = the emissions from purchased energy

Scope 3 = the emissions from everything else (suppliers, supply chain , distributors, product use, etc.)

There are a few big challenges here:

1. Current ERP / Accounting Departments are not built to record these emissions and there is a need for external integrated software solutions.

2. Scope 3 – especially emissions in supplier chains, subsidiary companies remain a challenge.

3. Increases Director oversight and Risk

The SEC regulations are a step in the right direction its focus is on the Environment Disclosure. It will lead to engaging with specialized outsourced advisors, software, and resources, and will lead to a focus on Net Zero, Science-based targets, and ESG. There are increasing considerations and risks for Directors.

Call for Directors ESG strategy and oversight

Despite the increased ESG focus, many Directors indicated that boards often lack the necessary tools for effective ESG oversight.

This clearly highlights the urgent need for:

• ESG Director training

• Aligning company strategy with ESG

• ESG Accounting and Reporting

• Improving Governance – Board Risk and Opportunity Assessments.

• Adding non-executive directors who can contribute on ESG

• Specialized new ESG roles – director or head of ESG

ESG represents a substantial shift in the way companies and boards will operate their businesses. This is further reflected by Moody’s expansion of ESG integration into credit scores and this will affect positively or negatively the company's abilities to keep or gain new customers.

Companies and boards will need to take urgent action in this new ESG world.

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1. ESG support for CFOs and Directors

2. Provision on Non-Executive ESG Director service

3. ESG3.0 - Digital ESG Tool Kit

ESG3.0 is a breakthrough approach to ESG that incorporates a digital data-driven approach of data collection, management, reporting, and energy reduction. The approach is both a Digital and Consultancy offering for companies providing a holistic next generation, strategy, data-driven, tech-based ESG solution, with a lower cost and more practical than the larger consulting firms. It is provided together with GCX have decades of subject matter experience – resulting in ESG Accounting, ESG Measurement, ESG reporting, and improved accuracy and transparency of your company's ESG rating.

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