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Investor Relations

How is the SEC Changing Sustainability Reporting?

March 24, 2022 | by Rachael Zahn
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The SEC has just announced a proposal that will require climate change and greenhouse gas emission disclosures for investors. Click to learn more.

The Securities and Exchange Commission (SEC) has announced a proposal that will up the ante for sustainability disclosure – and rock the boat for investor relations. The proposal would require a domestic or foreign registrant to include certain climate-related information in its registration statements and periodic reports, such as on Form 10-K. Although many businesses already disclose sustainability data, the SEC would make sustainability reporting mandatory.  

What the SEC Announced 

The SEC would require the publication of climate-related financial statement metrics and related disclosures in a note attached to the registered entity’s audited financial statements. This data would be based on reporting frameworks such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol. 

Required data would include climate-related risks and their actual or likely material impacts on the registrant’s business, strategy and outlook; the governance of climate-related risks and relevant risk management processes; a business’s greenhouse gas emissions; and more.  

If a registrant has adopted a transition plan as part of its climate-related risk management strategy, the proposal requires disclosures that include a description of the plan, including the relevant metrics and targets used to identify and manage any physical and transition risks. 

Read more about the requirements here. 

Why the SEC Proposal Matters 

The proposal matters to investor relations professionals for a number of reasons: 

  • Sustainability data is no longer a nice to have, but a must-have. That’s because investors are increasingly looking at climate change as a risk factor for publicly held companies. For example, JPMorgan reported that the COVID-19 crisis is accelerating the trend for a more sustainable approach to investing. 
  • The SEC is pushing IROs toward more uniform reporting. The proposal specifies the type of metrics that IROs need to disclose instead of leaving it up to IROs to decide. This is being done to align a company’s content with the needs of investors. But for IROs of global businesses, the proposal could make life even more complicated. The SEC proposal would add one more framework on top of many that companies need to navigate.  

The proposal is already being heavily debated. Critics assert that this regulation doesn’t take into consideration the costs associated with ESG and sustainability audits, content, advisors, nor the specifics needed to disclose. As noted, proponents stress how the SEC is pushing businesses in the direction of uniform and universal reporting.  

A related perspective, from Doug Peterson of S&P Global, points out that too often the conversation about ESG/sustainability reporting focuses on risk to a business. Instead, metrics should measure the positives that companies deliver as well as the risks posed by ESG issues. It is likely that the SEC proposal will ignite a broader conversation about the sustainability/ESG narrative in context of risk versus value. 

Doug Peterson’s post points to an intriguing challenge: how does a business meet increasingly stringent reporting requirements – while also influencing the conversation about the value that a business provides through its embrace of sustainability/ESG? After all, businesses such as Tesla have capitalized on sustainability to innovate. On March 31, Investis Digital and the National Association for Investor Relations will host a webinar, 'How to Tell Your ESG Story: A Tactical Guide,' to discuss this issue and many others. Whether disclosing the right data or creating the right story, issuers are caught at the crossroads, tasked with telling and selling an ESG narrative that connects both. So, when it comes to telling your ESG story, where do you start? And what do your investor audiences want to hear? 

Attend our webinar to find out. Register here. 

How to Tell Your ESG Story: A Tactical Guide / Thursday, March 31st @ 2 EST 

Contact Investis Digital 

To improve the way your IR team builds trust with investors, learn more about our Investor Relations and ESG & Sustainability solutions, or contact us here.