April 26, 2022

Time to Prepare for Climate Change Rules

I would be the first to admit that I usually say that it does not make much sense to begin preparing for compliance with new SEC rules when they are still in the proposal phase. Proposed rules are subject to change based on the comments that the SEC receives during the rulemaking process, and in many cases the SEC provides fairly generous compliance periods that give companies time to prepare for the new requirements.

With the SEC’s climate change disclosure proposals, I think it is a whole different ballgame. In an article that I recently published in Corporate Secretary, I describe the steps that companies should consider taking now to address the likely outcome of this rulemaking effort. The article notes:

It usually does not make sense to dedicate resources toward compliance when SEC rules are still at the proposal phase, but these proposed changes are quite different. Their scope and complexity may make them costly for companies if adopted. Even with generous transition provisions, companies may still not have time to develop the processes necessary to comply. For these reasons, public companies and their boards of directors should start working now to prepare for a whole new disclosure regime. They can do this by taking a series of steps.

The article sets forth five steps that companies can take now based on what the SEC has proposed. First, companies should take an inventory of the information they are already providing on climate change, determine how that information is gathered and how quantitative metrics are calculated, and assess their information-gathering and communication process. Second, companies should map their existing disclosures to the SEC’s proposed rules to identify potential gaps. Third, companies should revisit their approach to goals and targets in light of the SEC’s proposed requirements. Fourth, companies should look to the SEC’s proposed requirements to consider whether changes to their governance around climate change are necessary. Fifth, the proposed changes to financial statements should be previewed with management, the audit committee and auditors.

It is going to be a long and costly road to implementation of the SEC’s climate change disclosure rules when adopted, and I think this is a journey that companies should consider starting as soon as possible.

– Dave Lynn