Chapter 1: Compliance in Context

[Compliance in Context] Global Disclosure Regulations Are In Motion

September 5, 2023
September 6, 2023
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[Compliance in Context] Global Disclosure Regulations Are In Motion

Lesson Overview

One more caution before we dive into the details of the SEC rule. It’s important to keep in mind that the SEC rule is just one of many global climate disclosure regulations. There are three of particular note:

  • SEC (US) - Proposed in 2022, under revision and expected to be adopted in late 2023 for public companies reporting in the US market
  • CSRD (EU) - Adopted by the EU in 2022, comes into effect in 2024 for companies operating in the EU, including EU subsidiaries of non-EU companies
  • ISSB (Global)- Climate standards finalized in June 2023 and are expected to inform regulations in many jurisdictions as well as voluntary reporting as new global norms

In the face of probable court challenges to the SEC rule upon its final adoption, it might be tempting for US-reporting companies to sit on the sidelines until the SEC rule makes its way through the litigation.  This is a risky strategy.  While a company may be most directly impacted by the regulations in place in its home jurisdiction, foreign and state regulations can impact them as well.

This broader regulatory impact across jurisdictions can manifest in two different ways:  a geographic cascade and a value-chain cascade.

geographic and value chain cascades global regulatory landscape

In a geographic cascade, a company is subject to regulations in place not only in their home jurisdiction, but also in countries where they operate or are listed on non-US exchanges. Companies might also face regulatory compliance requirements due to the operations or listing of subsidiaries in other countries.

For example, a US company waiting for resolution of the SEC rule in the courts meanwhile could find itself required to disclose emissions data to a European country’s regulatory body for an EU-listed subsidiary, pursuant to the European Sustainability Reporting Standards that implement the CSRD.

In a value-chain cascade, a company may be required (or feel pressure) to provide emissions data to their business partners so that their partners can satisfy Scope 3 reporting requirements.

For example, a Taiwanese chip manufacturer may be asked for their footprint data by a Japanese computer manufacturer in order to meet Japan’s ISSB Scope 3 standard.

Neither of these cascade effects may seem overly cumbersome as a one-off. However, the effort for a company to comply with these seemingly minor asks compounds quickly if the company is addressing these individually and across multiple borders.

Fortunately, global climate disclosure standards have converged over the past couple of years around two frameworks:

  • The GHG Protocol - which sets carbon-equivalence calculation standards for greenhouse gas emissions, and defines Scope 1, 2, and 3 emissions as a company’s direct, indirect from electricity, and indirect from value-chain emissions, respectively
  • TCFD - which lays out 4 key pillars of climate-related disclosures: Governance, Strategy, Risk Management, and Metrics & Targets
  • We’ll go deeper into both of these as applied to the SEC rule in Module 2

This convergence makes a compelling case for companies to shift away from a reactive and splintered, local-first approach to disclosure, and rather, toward a holistic carbon data strategy with a global lens.  In turn, the company is better prepared for disclosure regardless of jurisdiction.

Yes, there are variances in framework application at the country level, but the scale achieved from a proper central enterprise data foundation will help to reduce total effort. All the while, companies will also reap the internal benefits of understanding their own emissions profile.

Looking Ahead

As we move into the SEC-focused portion of this primer, we encourage you to think 2-3 years ahead.  Challenges to the SEC rule will likely be sorted out, and global adoption of ISSB standards will continue to proliferate. These rules will have begun to phase-in globally, and market forces will continue to seek consistent, high-quality carbon data from companies. 

The ability to report your footprint will have become an expectation of doing business.  

Companies that use this time to invest in their carbon accounting program will be better prepared to share transparent and reliable climate data on-demand, and will enjoy the market’s rewards for doing so.

Now, let’s get SEC-ready.

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