Toward Mandatory Climate Disclosure in the US? What the SEC Proposal Means for Sustainable Procurement

On March 21, 2022, the U.S. Securities and Exchange Commission (SEC) introduced a landmark proposal requiring companies to include climate disclosures in their annual filings. The move responds to activist calls and investors’ increased information needs regarding the climate resilience of publicly traded companies. If the proposed rules come into effect, companies would be required to disclose their level of climate risk exposure and greenhouse gas (GHG) emissions not only for their own operations but, for large entities, across their supply chain. To meet the proposal’s requirements, reporting companies’ sustainable procurement function will play a key role in gaining the supply chain insights needed. Building supply chain visibility and adopting climate-related risk management strategies will provide businesses with the dexterity needed to respond to the new provisions and secure their resilience against existing and potential climate threats.

Domestic and Foreign Companies To Report on a Range of Climate Risk

The SEC’s proposal on climate-related disclosure applies to companies of all sizes that are publicly listed in the US, both domestic and foreign. The proposed rules would require registrants to disclose their processes for identifying, assessing and managing climate-related risks. Liable firms would be required to outline how they incorporate these processes into their risk management system and how any climate-related risks have had, or are likely to have, a material impact on their operations. The proposition would also mandate companies that have publicly set climate-related targets to detail the scope and time horizon of these goals and how they intend to achieve them. Companies would be required to report on the effect of climate-related events and their transition plans on the line items in their consolidated financial statements, financial estimates and forward-looking statements and the assumptions applied in their financial statements. Finally, the proposed ruling would require all companies to disclose their Scope 1 and 2 emissions, and large companies to disclose their Scope 3 emissions if material. 

Click here to learn more about the new SEC proposal on climate-related disclosure