FIGURE 1 Four Pillars of SEC Climate Disclosure The information below in four key areas should be shared with investors. This is modeled after the globally adopted TCFD structure.


Governance


Who within your board and man- agement oversee climate-related risks and opportunities and how climate- related risks and issues are escalated through board and management channels.


Strategy


Climate-related risks you face and how you incorporate their impact into your business strategy, planning and capital allocation.


Risk Management


How climate risks are identified and incorporated into your broader risk management plan and a description of your transition plan, if you have one.


Metrics and Targets


Your most recent and historical green- house gas emis- sions (a.k.a “carbon footprint”) and your progress against any targets you have set.


SOURCE: SEC Proposed Rule, interpretation by Kristina Wyatt as seen in the Persefoni Academy Course: SEC Executive Primer.


harmonization reflects the SEC’s commitment to addressing inves- tor demands for consistent, comparable, and reliable information on climate and broader ESG issues.


New California Climate Disclosure Laws California SB 253 and SB 261 emerged as a state-level response to the growing need for climate-related disclosures. SB 253 mandates that public and private U.S. businesses with revenues over $1 billion that operate in California measure and report their Scopes 1, 2, and 3 greenhouse gas emissions. Te new law also requires third-party assurance for reported emissions. (More details about SB 253 are shown in FIGURE 2.) SB 261 complements this by requiring U.S. businesses with over $500 million in revenue that do business in California to submit bi-annual climate-related financial risk reports. With California boasting the world’s fifth-largest economy, the


implications of SB 253 and SB 261 are substantial. For example, the inclusion of Scope 3 emissions in the reporting requirement broadens the regulatory scope compared to the SEC’s proposal. Moreover, Scope 3 emissions will be required of reporting com- panies without regard to their size.


Comparing California Laws to the SEC Climate Proposal


While both SB 253 and the SEC Climate Proposal share the com- mon goal of enhancing climate-related disclosures, there are key differences. First, the scope of each rule varies. SB 253 targets companies with revenues over $1 billion operating in California,


2 2 FA L L 2 0 2 3 ■ IR UPDAT E


irrespective of SEC reporting status, including private companies. By contrast, the SEC climate rule applies to public companies reporting to the SEC, encompassing both U.S. public companies and foreign private issuers. Second, the treatment of Scope 3 emissions differs. SB 253


mandates the reporting of all Scope 3 emissions, recognizing the broader impact of indirect emissions related to companies’ value chains. Te SEC climate proposal, on the other hand, would require disclosure of Scope 3 emissions only if reduction targets are set or if these emissions are deemed material. Further, the SEC proposal would exclude smaller reporting companies from the Scope 3 reporting requirements.


Adapting to Investor Expectations One of the key implications of these regulations is the evolving expectations of investors. While the SEC proposal primarily focuses on investor protection, the California climate bills have broader purposes. Nevertheless, both reflect the increasing demand for comprehensive and reliable climate-related information. IR pro- fessionals must respond with: • Proactive Engagement: IR professionals need to proactively engage with stakeholders, including institutional investors, analysts, and senior management. Understanding the evolving expectations of these diverse groups is paramount.


• Alignment of Disclosures: IR professionals must meticulously align the company’s climate-related disclosures once these expectations are discerned. Tis alignment may involve a more robust investor


niri.org/ irupdate


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