Narrative Disclosures & Your GHG Footprint

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GOVERNANCE

Summary

Governance disclosures seek to provide investors with details about the structure, process, and even key players involved in the ongoing oversight of climate-related risk, both at the board and management level. This includes topics such as, but not limited to:

• Description of oversight activities and committees regarding climate risk, and the frequency and channel of getting identified risks to the board
• Identification of board members with expertise in managing climate risk
• Description of board processes for assessing climate risk and consideration of those risks in strategy decisions
• Similar identification of managers with expertise in managing climate risk
• For full text of Governance disclosures, see Item 1501 of the SEC Proposed Rule

• Governance is a foundational component of the narrative disclosures. It would not be surprising if future rules related to sustainability topics beyond climate will ask for similar disclosures related to the company’s governance structure with regard to those topics.
• Note the proposal does not require you to hire or otherwise engage individuals with climate expertise to include on your board or in management ranks. Rather, the proposal would only require companies to inform investors if they do have such expertise in their management ranks and on their boards. If they do have such expertise, the proposal would require companies to identify such individuals and their backgrounds.
• Similarly, the proposal would not require you to form climate-focused committees at any level – only to disclose details about those committees if they exist.

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STRATEGY

Summary

The Strategy disclosures (referred to as ‘Strategy, Business Model and Outlook’ in the Proposal) seek to provide a deeper understanding of the climate-related risks your company faces and their impacts. This includes details about the financial impacts of both physical and transition risks, and how you take those impacts into account in your business strategy and financial planning.

If the rule is adopted as proposed, you’ll be required to disclose details about:

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• Preparing these disclosures will require forward-looking assumptions and statements; remember to identify those forward-looking statements and to apply the cautionary statement required to invoke the safe harbor under the Private Securities Litigation Reform Act.
• Use discretion when citing quantitative vs. qualitative financial impacts - your ability to provide high-fidelity quantitative disclosures is likely to evolve over time.
• Remember, while you are required to disclose climate risks and their impacts, the rule permits you to also disclose climate-related opportunities, insofar as they are relevant to your strategy, business model, and outlook.

RISK MANAGEMENT

Summary

While the Strategy disclosures focus on the climate risks and their impacts on your strategy, Risk Management disclosures seek to provide investors with detail about the process by which climate-related risks are identified, how they are assessed and prioritized relative to other risks, and how a determination is made to mitigate, accept or adapt to any such risk.

There is one additional disclosure in this pillar specific to a transition plan. That is, if your company has adopted a formal plan to mitigate or adapt to any identified physical or transition risks, you will disclose a description of that plan here, including the relevant metrics and targets used to identify and manage any physical and transition risks. 

• For full text of Risk Management disclosures, see Item 1503 of the SEC Proposed Rule

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• While Risk Management disclosures are largely focused on process, you’re still required to provide some detail on your criteria when assessing risks.  Examples can be helpful to illuminate your process.
• Once again, you are not limited to discussing climate-related risks only; you’re welcome to highlight any identified climate-related opportunities, and plans to achieve those as well. While risk disclosure would be required under the proposal, disclosure of opportunities would be discretionary. 

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METRICS & TARGETS

Summary

Naturally, the most notable disclosure in Metrics & Targets is your company’s GHG emissions footprint itself. If the rule is adopted as proposed, you’ll be required to disclose:

Beyond your footprint, you must disclose any other climate-related metrics you track, any targets that you have set, and provide documentation of progress you’ve made against those targets.

• For full text of Metrics & Targets disclosures, see Items 1504 and 1506 of the SEC Proposed Rule; Item 1505 details Attestation requirements as proposed.

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• The GHG Protocol provides the most commonly used global standard for emissions calculations. It provides a common language for translating activities in which a company engages into their emissions impact. It is as if we have gone from the barter system to a common currency that enables comparison across companies and activities. 
• The GHG Protocol enables companies to translate their activities - such as the volume of raw materials produced, airline miles flown, or electricity purchased - into CO2 equivalents. The translation mechanism can be automated, as described in the next module.
• The proposal does not require you to set emissions targets or to perform against them. The proposal would only require disclosure of, and progress against, targets that have been voluntarily set.
• Remember that for Scope 3 reporting (if required), the safe harbor will apply to limit liability when relying on external data, as long as good faith holds.
• Carbon accounting software can help provide a single source of truth for both internal tracking and regulatory disclosures.

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A shareable infographic of the SEC Climate Rule can be found here.

In our final module, we’ll close out with a check-in on your company’s SEC disclosure readiness, and introduce some tools that can help you along the way.

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