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?
As organizations await the final rule, there are a few suggested steps to take to prepare for the disclosure requirements:
Regardless of if you’ve produced a robust sustainability report previously or are just beginning on your ESG journey, consider the following:
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:
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.