The SEC’s proposed climate rule would require disclosures with respect to certain climate-related risks, governance and risk management processes, greenhouse gas emissions, climate-related financial statement metrics, and information about climate-related targets, goals, and transition plans, if any. While the rule will not be finalized until after a notice and comment period, here are three things for boards to focus on right away:
1. Assess and oversee the path to compliance. While an effective date will remain open until the SEC adopts the final rules, for large accelerated filers, the earliest compliance date could affect disclosures for fiscal year 2023 (filed in 2024), with later phase-in dates afforded to smaller companies. The board should assess the company’s current state of readiness, management’s plan to achieve compliance on or before the relevant effective dates, and metrics and milestones to be reviewed with the board along the way.
2. Step up oversight of the company’s current climate-related communication strategy. Stakeholder interest in the business impacts of climate-related issues continues to accelerate, and company disclosures are increasingly called out for “greenwashing.” Review with management the external forces currently impacting the company’s climate-related disclosure—the views of the company’s most important stakeholders (including investors, regulators, and other key stakeholders), and what competitors are disclosing. Where are the gaps, and how will management address them in light of the acceleration of attention paid to these communications?
3. Set the tone—start early. Questions remain. The proposed rule may change prior to finalization and litigation challenging the final rule is highly likely. A “wait and see” approach would be problematic, however, and a culture of readiness may require leadership from the board. As board members who serve on the boards of companies with robust climate disclosure processes know, it takes time to develop expertise in gathering, evaluating, verifying, and reporting emissions data. There will certainly be a rush for talent and resources as compliance dates loom. The companies that start early will be well positioned to report. Most importantly, the information that will be gathered for purposes of compliance—on carbon footprint, climate-related risks, goals, and transition plans—should also provide a strong foundation for rich boardroom discussions about strategy and risk.