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ESG reporting already a reality before SEC ruling

© Shutterstock / AevanStockthe logo of the SEC on a wall

A new survey conducted by PwC US and Workiva (NYSE:WK) found that many companies are not waiting for the US Securities and Exchange Commission (SEC) to finalise the climate disclosure rules and will proceed with compliance regardless of when they become US law.

  • PwC US and Workiva found that many business leaders in the US are prioritising ESG reporting, even if it has not yet been imposed by the financial regulator.
  • The US is expected to issue a ruling on how US companies disclose data and risks on climate change.
  • Although experts recommend a proactive approach to compliance, many businesses admitted that they are not fully prepared to meet the expected disclosure requirements.

The survey involved 300 executives at US-based public companies with at least $500 million in annual revenue, to get a sense of how businesses are thinking about – and preparing for – the final rule.

What rule is the SEC expected to finalise?

In March 2022, the SEC proposed sweeping changes for how US companies disclose data and risks on climate change. These proposed rules would require companies to disclose information on a range of climate-related issues, from their strategy to their emissions data. 

After a delay in finalising the changes due to huge numbers of public comments, the SEC recently announced the rule is currently expected to be finalised in Spring 2023. While it is unknown exactly what the changes will be, they are expected to be of seismic importance for US companies’ ESG efforts. 

The requirements currently include disclosure of the projected risks and material impacts on the business, strategy, and outlook caused by climate change; Scope 1 and scope 2 greenhouse gas (GHG) emissions; Scope 3 if the material or the registrant sets an emissions reduction target that includes Scope 3 emissions; governance of climate risks and risk-management processes; and decarbonisation plans with interim targets.

US companies are ready to disclose

The survey found that 70% of business leaders were not waiting for the SEC ruling, as they are already seeking voluntary, independent assurance, even if it is not required for reporting Scope 1 and 2 GHG emissions. Almost all leaders (96%) said that they will proceed with assurance, regardless of whether it is included in the final SEC rules.

The people being surveyed did acknowledge that there will likely be significant challenges to compliance including deadlines, resourcing, technology, and budget. In fact, while 68% of executives reported that their company already uses technology for ESG reporting, 85% were concerned that their business does not have the right technology in place to support the level of reporting required in the proposed rules. 

“Decisions in the capital markets are being made related to ESG, and it is our belief that market participants and other stakeholders are entitled to the same quality of information as they expect from financial related disclosures,” said Kevin O’Connell, Trust Solutions ESG Leader at PwC. “Many ESG issues can be material to a company’s core strategy and long-term value creation. Regardless of when the SEC rules are finalized, investors and stakeholders have made clear: this is important. Companies should be preparing by transitioning to investor-grade and tech-enabled reporting to help accelerate their reporting process, and looking to implement effective governance and internal controls.”

Investment is underway

Although 95% of business leaders said that their company is prioritising ESG reporting more now than before the rule was proposed, four in ten admitted that their company is not fully prepared to meet the expected disclosure requirements. 

The research found that many companies had already prioritised reporting and begun taking proactive measures. All executives shared that their company had taken at least one action in anticipation of the rule becoming law, with many taking more than one. While these actions varied, the most common include: investments in ESG reporting technology (40%) and people (33%), and accelerating (35%), or establishing, if necessary (33%), climate ambitions or goal timelines.

“Having the right technology, people, and timelines will be critical to complying with the proposed rule changes and other stakeholder demands for ESG transparency,” said Julie Iskow, president and chief operating officer at Workiva. “Our research also indicates that independent assurance is expected to play a major role in companies meeting expected requirements. ESG reporting is complex, requiring the ingestion, capture, management, and reporting of financial and non-financial data from many disparate sources. The more that ESG reporting is integrated into the decision-making processes of companies, boards and investors, the more important it is that the information is trustworthy.”

ESG reporting to become increasingly embedded in businesses

The researchers said that the survey tells two different stories about ESG reporting. On the one hand, it is encouraging to see that companies have embraced ESG reporting today; on the other, it is not clear yet what the ESG reporting of tomorrow will look like.

They highlight, however, how the corporate landscape is rapidly changing and that we have reached a tipping point, as companies need to address technology and resourcing challenges to become compliant with ESG transparency.

This is true not only for US-based businesses, but for several organisations worldwide that are facing more stringent rules in their jurisdictions, such as the EU, the UK, India, Switzerland, Abu Dhabi and Singapore. As found in the survey, taking a proactive approach before any proposals become mandatory will be advantageous for companies.

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