Experts at Riveron say companies should focus on building their climate reporting capabilities this year in the wake of the climate risk disclosure rule released today from the US Securities and Exchange Commission (SEC). The SEC stripped out a controversial part of the proposed rule—there will be no requirement regarding Scope 3 greenhouse gas emissions reporting—marking a distinct difference from other regulations in California and the European Union (EU).

Although the rule gives companies some breathing room to get their environmental, social, and governance (ESG) foundations in order, Drew Niehaus, managing director of Riveron’s ESG practice, cautions that companies do not have time to spare when it comes to preparing for the more fulsome discussion of climate risk in the 10-K that will be mandated under the new rule.

Ozan Gursel, senior managing director of Riveron’s financial advisory segment, says that “while Gensler has previously made it clear that the SEC is not a climate policy agency nor a climate risk regulator, there is a segment of investors for whom climate-related disclosures are important for financial investment decisions. It’s important that these investors get more consistent and comparable disclosures to make better informed decisions.”

Per the rule, the required disclosures other than Scope 1 and Scope 2 greenhouse gas emissions will be required for large accelerated filers and accelerated filers for fiscal years beginning in 2025 and 2026, respectively. These requirements go into effect for emerging growth companies, smaller reporting companies, and non-accelerated filers for fiscal years beginning in 2027. Scope 1 and Scope 2 greenhouse gas emission disclosures will be required for large accelerated filers and accelerated filers for fiscal years beginning in 2026 and 2028.

Given the complexity of the disclosure requirements and the timeline to compliance, most public companies will have significant work to do over a multi-year period to deliver investor-grade climate reporting. Companies need to act now to establish protocols and controls for collecting, analyzing, publishing, and auditing climate data as well as to build capabilities for identifying and contextualizing both physical and transitional climate risks.

“One of the most important things companies need to consider is that climate reporting is no longer the work of the environmental or ESG team alone,” Niehaus says. “Financial, accounting, and operations leaders will all need a seat at the table. At the end of the day, the CFO must be able to confidently attest to the published information.”

As a next step, Riveron stresses the importance of building a team with the right players to prioritize the data collection and reporting aspects of the rule. Ideally, this group of experts will include climate data scientists along with accounting and financial reporting advisors. Beyond emissions data and quantitative metrics, companies also need to give thoughtful consideration to qualitative disclosure requirements and may want to complete a climate risk assessment as a way to focus the team on the organization’s most substantial risks and their actual and potential financial impacts.

Filings will be highly scrutinized by regulators, and few public companies are truly prepared to deliver and validate climate information. This year needs to be the trial run where companies not only establish baseline data but also proactively assess the quality of their data, collection processes, and reporting capabilities. Once that baseline is established, companies can identify gaps in their reporting and implement changes needed to address those gaps. Doing so will not be a small undertaking.

Riveron urges companies to do the required work with a long-term mindset and attach it to the company’s broader ESG program.

“While companies have their plates full to meet the reporting deadlines, only trying to address data collection and neglecting everything else would be a missed opportunity,” states Vini Oliveira, managing director at Riveron. “As more requirements are likely in the near future, the best way forward is to create a strong foundation in ESG and prepare to respond to any future environmental- and social-related data requirements.”

“This rule complements a lot of other climate-related reporting regulations, including the recent California climate disclosure rules,” states Matt Novak, senior director and Riveron’s head of climate risk and reporting. “Even without the Scope 3 requirements in the final SEC rule, many US companies will still have to eventually calculate and report Scope 3, so it will be important to look beyond these rules to get a total picture of the ESG reporting landscape relevant to a specific organization.”

About Riveron

Riveron is a leading business advisory firm. We partner with the office of the CFO, private equity firms, and other capital providers to elevate performance across the transaction and business lifecycle. Our thoughtfully integrated teams generate tailored solutions through accounting, ESG finance, strategic communications, technology, and other cross-functional expertise. Founded in 2006, Riveron has 12 offices across the country and serves a diverse set of clients around the world.

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“... climate reporting is no longer the work of the environmental or ESG team alone. Financial, accounting, and operations leaders will all need a seat at the table. The CFO must be able to confidently attest to the published information."