As a follow-up to our Top EHS Trends for 2023 webinar, RegScan is taking a closer look at some of the activities shaping the EHS compliance and sustainability space this coming year. This blog post will focus on a top EHS trend for 2023: ESG developments.
The proposed SEC climate disclosure rule is expected to be the first mandatory federal reporting requirement of its kind in the U.S. It would require companies to report on how climate change could impact their financial performance, as well as how their own emissions contribute to global warming. It shares some similarities with the European Union’s Non-Financial Reporting Directive (NFRD), which requires companies to publish regular reports on their environmental and social impacts, as well as the proposed Corporate Sustainability Reporting Directive (CSRD).
The rule would apply to U.S. listed companies. For now, privately held companies would not be subject to the rule. However, the SEC has said that it aims to mandate disclosures for large private companies as well. The two important things to remember here are:
- Listed companies would be required to disclose any climate-related risks that could potentially affect their financial stability. This would include risks like severe weather, the costs of transitioning from fossil fuels, and new regulations such as a possible carbon tax.
- Companies would also need to disclose their carbon emissions. Covered companies would report their direct and indirect emissions, also known as Scope 1 and Scope 2 emissions. Scope 3 emissions, or those from their suppliers or partners, would need to be reported if they pose a material risk to the business, or are included in its emissions reduction targets.
The key takeaways: Although many investors back the core tenets of the SEC’s proposal, the SEC is months away from finalizing expansive new climate disclosure requirements as the agency investors demand for more transparency. In 2023, we will see companies take more active steps in devoting financial resources to EHS budgets with ESG being credited as the reason to increase spending. As legislation and accountability evolves, many companies will begin devoting resources to increased spending ESG resources, or some may devote a team to manage ESG needs and requirements.