Disclosing climate risk

The role of integrated risk management in meeting SEC guidelines

Arun Ghosh

Arun Ghosh

U.S. Leader – Climate Data and Technology, KPMG US

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.

ESG leaders are in need of strong governance frameworks, program management, and integrated risk management principals. As alliance partners, KPMG and ServiceNow help clients embed ESG into daily work, configure workflow-driven data controls, create new policies and procedures, continuously monitor and mitigate risks, and identify and address program gaps to strengthen future ESG reporting and performance.
Arun Ghosh, Climate and data technology leader KPMG U.S.

By integrating modules within the ServiceNow platform to core ESG tracking capabilities, KPMG can help organizations begin to meet proposed SEC requirements for governance and oversight, and not only demonstrate but additionally optimize reporting processes. For example, by integrating risk and compliance programs within the IRM module to the ESG module on the ServiceNow platform, an organization is able to gain greater visibility and governance into risks and controls associated with their ESG program, material topics, and goals. In addition, ESG leaders are able to gain insights into controls within the enterprise that are reducing risks associated with their ESG program while having visibility into the strengths of controls assessed by the 2nd Line of Defense groups. 

SEC proposed requirements are urging organizations to demonstrate “how” they are going to make an impact in their climate-related material topics, causing an increased need for program and project management insights tied to ESG programmatic objectives. The PPM component of the KPMG and ServiceNow ESG offering enables the association of programs and projects outside ESG ownership that impact the delivery of stated goals and targets, which provides greater transparency in the work that has been completed, is actively being performed, or is planned.  By tying these together, an organization can show the impact of completed programs and projects on actual supporting ESG data and begin to demonstrate their organization’s time, commitment, and level of spend that is supporting their ESG mission.