Disclosing climate risk

Taking a closer look at ESG program governance

Investors, customers, employees, and communities continue to insist that companies drive change toward a more sustainable future. In response, Line of Business leaders are championing various ESG initiatives in their functional areas – from carbon accounting, to supply chain diversity, to more inclusive workforces. Stakeholder demand spurred action, but the need to scale and mature ESG programs is intensifying as regulators like the SEC propose new rules for climate-related disclosures.

Many companies have been reporting on ESG, and even anticipated regulations, however the SEC proposed guidance will drive organizations to begin (if they haven’t already) to embed Risk and Compliance oversight activities into their maturing ESG program and strategy sooner rather than later. Filers need to act now on the proposed guidance as it would require the adoption of new policies, examination of existing data and policies, and the creation of new controls.

The proposed SEC guidance calls for heightened rigor related to transitional risks like disclosing risk related to the use of carbon offsets and RECs. In addition, the proposal would require the disclosure of climate risks – both physical and transitional – that affect your organization while also disclosing the actions being taken to reduce those risks and meet stated ESG objectives. These disclosures would drive the need to develop synergies within your enterprise risk management and ESG framework and practices. Integrating climate risk to the overall enterprise risk taxonomy while documenting and reporting on climate impacts will be not only a necessity but complicated.

Chief Sustainability Officers and Chief Finance Officers who are responsible for enterprise-wide ESG programs have been challenged to gain a holistic view given the typically siloed areas within an organization. Now they face even more pressure to not only gain visibility, but to develop and demonstrate the controls and processes governing the entirety of their organization’s ESG program. With regulatory guidelines in mind, leaders must examine current gaps and introduce a framework that will weave governance into the fabric of their ESG programs.