Benchmark ESG (Benchmark), a leading provider of cloud-based Environmental, Social, and Governance (ESG) enterprise software solutions, recently convened ESG experts to discuss the anticipated final form of the SEC’s proposed rulemaking for corporate climate risk disclosures, the immediate compliance implications of the rule, and steps SEC registrants (i.e., issuers) can take to achieve compliance.
“On ESG, accommodating stakeholder expectations and otherwise building a more resilient company with reliable, decision-useful performance data has long been the name of the game,” said Benchmark Chief Market Strategy Officer Donavan Hornsby when reflecting on Impact 2022, Benchmark’s recently concluded annual customer conference. “But the SEC’s rules, even if we can see them coming from a mile away, will change things. Companies are going to need to have impeccable, granular, and auditable data. And they’re going to need to formalize and be able to report their approaches to climate risk management and mitigation.”
Featured guests at this event included J.T. Ho, Co-Head of Orrick’s Public Companies & ESG Practice, Orrick, Herrington & Sutcliffe LLP; Heather Moore, P.E., Technical Director of Sustainability, LRQA; and David Ocamb, Director, Global Environmental Programs, Trane Technologies.
“The SEC is moving beyond its principles-based approach to governance of corporate climate-related disclosures to a decidedly prescriptive approach,” explained Ho. “While largely similar to the TCFD framework, companies will be expected to disclose information on virtually every component of the ESG performance measurement, management, and reporting edifice. From the qualifications of their potential attestation providers to the formalization of internal policies for actual and planned governance of emissions and climate-related financial risks—there must be a sweeping, enterprise-wide gap analysis for regulated companies.”
Experts convened by Benchmark were largely in agreement over the components of a dual strategy for compliance achievement and climate-related financial risk mitigation and management. One area of particular consensus was on the need for companies to ensure the integrity and credibility of the climate-related financial risk exposure, oversight, management, and performance data that they disclose.
“The [data] verification process is necessary to assure investors of the trust they can have in the [issuer’s] data,” explained Moore, “and the SEC, in the development of its proposed rule, has outlined initial requirements for Limited Assurance but, importantly, proposed a gradual transition to requirements for Reasonable Assurance, which will demand more of the data collection, storage, and retrieval competencies of disclosing companies.”
“[The data verification process] is a partnership. And you’ll need a strong platform; a dedicated, configurable, and automatable data management system,” said Ocamb when describing the experience of a typical climate risk data auditee. “If you’re trying to do all this manually with spreadsheets, you’re going to have a really hard time.”
The fifth session of Benchmark’s ESG Executive Collaboration Forum series, a recording of which is available here, closely followed the filing of Benchmark’s own public comment on the SEC’s proposed corporate climate risk disclosure rule. The full text of Benchmark’s public comment is available here.
“Benchmark commends the SEC for taking bold, long-awaited action toward governance of corporate sustainability disclosures,” said Benchmark founder and CEO R. Mukund, who authored Benchmark’s filed comment. “But, as we expressed in our response to the proposed rulemaking, the Commission’s forthcoming standards can and should be more prescriptive. Regardless of the rule’s final form, though, achieving compliance will require a methodical, strategic, and comprehensive approach to ESG performance data management, verification, and disclosure.”
Benchmark appreciates the uncertain nature of the SEC’s proposed rulemaking and its attendant compliance implications. To that end, Benchmark encourages interested parties to join the ESG Executive Collaboration Forum LinkedIn group for additional discussion on matters examined in the webinar. Additional resources on ESG data management can be found here, as well as a full Benchmark event calendar here.
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