How to prepare for the proposed SEC ESG disclosure requirements

In March 2021, the SEC announced plans for a greater focus on climate-related risks, which included the formation of an SEC Climate and ESG taskforce to oversee the initiative. In March 2022, the SEC sought public comment on the proposed climate change related disclosures and is currently reviewing comments with a final rule anticipated later this year (2022).

The proposed disclosure ties to the Task Force on Climate- Related Disclosures (TCFD) and the newly formed International Sustainability Standards Board (ISSB), a part of the International Financial Reporting Standards (IFRS) Foundation. The TCFD focuses on governance, strategy, risk management, and metrics and targets of climate change disclosures. Companies should view their disclosure development process with these focus areas in mind and it’s important to prepare early to avoid being caught off guard. How can your organization get started?

Steps to prepare for disclosure requirements

As organizations await the final rule, there are a few suggested steps to take to prepare for the disclosure requirements:

Develop your ESG strategy and assess your current state

Regardless of if you’ve produced a robust sustainability report previously or are just beginning on your ESG journey, consider the following:

• Have you identified ESG strategy goals, metrics or targets?
• Are your ESG goals aligned with your corporate strategy?
• What actions and resources are needed to support these goals and strategies?

Educate and upskill your team

ESG may be a new focus for many companies who might lack the internal expertise to successfully implement and deploy these programs, which requires an understanding of the roles of risk management and oversight related to ESG. Identifying the skill gap and education necessary for the following support teams is crucial for a successful strategy:

• Management: Does management understand the oversight role of managing and monitoring climate-related risks? Have targets been developed and the process for measuring against targets identified? Have strategies and solutions been identified and implemented to support targets?
• Board: Does the board understand the context of climate change related risks within your organization and industry? Is the board equipped to evaluate the climate-related risks as a part of your business strategy, risk management and financial oversight?
• Accounting: The reporting of non-financial ESG-related data will often be owned by the finance and accounting team. Familiarizing this team with the data sources, information, and systems to support reporting will be crucial.
• Operations: Operational teams play a key role in identifying and measuring the ESG-related data, as well as implementing the strategies to support the identified targets and goals.

Prepare for climate change disclosure assurance

Organizations should look to deploy a cross-functional team to support the strategy implementation and identify key reporting data points that will prepare organizations for proposed climate change disclosure assurance. This team will need to include operations, accounting and internal audit. Knowledge of the organization is necessary to identify the data sources and information relevant to supporting the disclosure requirements. Accounting will have responsibility for the climate change disclosure reporting within the annual filing. Internal audit can assist with development of processes and internal controls related to the disclosure requirements.

Now is the time to get started! It takes time to upskill, prepare and operationalize all players to ensure successful preparation for disclosure changes. As noted, the SEC is expected to issue a final rule later this year. Don’t be caught off guard.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.