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Getting a Jump on Climate Change Disclosures

Getting a Jump on Climate Change Disclosures

CFOs should start planning their communications strategies and assessing climate-related business risks as soon as possible.

The Securities and Exchange Commission recently announced its intention to review all corporate climate-related financial disclosures, with plans to update its current guidance on the subject. The update is primarily driven by the commission’s foresight in anticipating the need for change, given the critical goal outlined by the current White House — to cut greenhouse gas emissions in the United States in half by 2030.

The push was likely inevitable, as some investors consider climate-related issues before making their investment decisions to minimize their exposure to the risk of stranded assets and the risks related to physical assets. The SEC’s call for updated disclosures is consistent with its proactive approach of listening to investors and adjusting requirements to meet the ever-changing disclosure environment.

The SEC’s review has far-reaching implications for finance departments. Companies will, among other things, be judged not only on how they manage climate-related risks but also on how they disclose them.

Because changes in reporting requirements can confuse investors and other stakeholders, it is essential that CFOs start planning their communications strategies and assessing climate-related business risks as soon as possible. That’s true even though the SEC is still collecting public input on climate disclosure rules. (The deadline for comments is June 15.)

The impact of the yet-to-be-determined SEC guideline changes will vary, depending on the nature of an organization’s operations and how it currently reports environmental risks.

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