Sustainability and ESG

What the SEC Climate Ruling Means for Companies

Avetta Marketing
min read

On March 6, 2024, the US Securities and Exchange Commission (SEC) approved a new rule requiring most public companies report their climate risks and greenhouse gas emissions. The final rule introduces significant new climate disclosure requirements for many organizations, though it also omitted some elements of the proposed rule (such as Scope 3 emissions reporting).

Here’s the key facts you need to know---plus why US companies should still be thinking about Scope 3 supply chain emissions.

What’s covered in the SEC ruling

Under the new rule, most public companies will be required to disclose many climate-related risks and impacts, including:

  • Climate-related risks likely to have a material impact on a business’s strategy or operations
  • Processes around identification and oversight of those material risks, as well as measures taken by the company to mitigate or adapt to them
  • Information on the company’s climate-related targets or goals, if any
  • Costs and losses related to severe weather events
  • Scope 1 emissions, which are direct emissions that are owned or controlled by a business (such as emission from vehicles)
  • Scope 2 emissions, which are indirect emissions related to the energy it uses and purchases (such as emissions caused by electricity used in company buildings)

The SEC estimates that the new rules will impact roughly 2,800 US companies and 540 foreign organizations with operations in the US. The rules will be phased in over the next several years, depending on company size and SEC registrant type. The first disclosures will begin in 2025. Read the SEC fact sheet here for more information.

What about Scope 3 emissions?

Scope 3 emissions are another type of indirect emissions, mostly generated by a company’s supply chain (such as emissions produced by any suppliers or contractors of the company).

Though Scope 3 emissions were included in the proposed rule in 2022, the final rule excluded Scope 3 emissions from the requirements. However, that doesn’t mean US companies (public or private) should overlook Scope 3.

California’s SB 253 and 261 go into effect later in 2024 and mandate Scope 1, 2, and 3 reporting for entities connected to a California business supply chain. Given how many organizations operate in California or have supply chain connections in the state, that means many public and private US organizations will be required to report on Scope 1, 2 and 3 emissions.

Additionally, the European Union (EU), Germany, and other countries already have laws in place regarding environmental, climate and sustainability disclosures and compliance within supply chains, which means more and more companies globally will need to examine their reporting capabilities around these topics.

How can companies prepare for rapidly evolving climate disclosure regulations?

While many businesses may not be directly affected by the SEC ruling and other emerging climate regulations, it's likely your purchasers will require GHG and Scope 1-3 impact metrics for their compliance reporting moving forward. Because the majority of climate risks lie within the supply chain (e.g. Scope 3), mapping high risk emitters is essential for all companies complying with the SEC ruling, CA SBs 253 and 261, and others.

Vendors should expect increasing requests for their GHG emissions in future RFPs and bid processes. To prepare, businesses must gain initial GHG baseline transparency and comparative performance to maintain competitive advantage and avoid the risk of lost revenue.

Avetta can help with emissions and sustainability tracking

Avetta’s ESG & sustainability features make it easy to understand emissions impact, comply with regulations, and improve your extended environmental footprint, including:

  • Simple sustainability prequalification forms, tailored to each contractor’s trade, industry and location
  • A patented ESG index to help you understand the risk level and maturity of your supply chain, benchmarked to thousands of other contractors and suppliers
  • Contractor carbon emissions tracking with simple calculators to help them easily determine their own emissions
  • Sustainability and emissions reporting to satisfy corporate, investor, community and governmental reporting requirements

Want to learn more about Avetta’s comprehensive contractor risk management solution, including our sustainability and emissions tracking tools? Contact us today.

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