What Does the SEC's Climate Disclosure Proposal Mean For Supply Chains?
- The U.S. SEC has proposed that listed companies disclose their exposure to climate-related risks, as well as Scope 1, 2 and 3 emissions
- Potential challenges for enterprises include the increased costs and lack of a consistent framework for measuring supply chain emissions
- They can partner with technology providers to capture emissions data, identify climate-driven risks in operations and find opportunities to reduce costs
With so much current focus on sustainability and climate change, it should not come as a surprise that a U.S. regulatory agency is proposing to require companies to report on their climate-related risks and greenhouse gas emissions. It might, however, be a surprise that the agency is not the Environmental Protection Agency but the Securities and Exchange Commission.
The SEC’s new proposed rules for climate-related disclosures would require public companies to report business exposure to climate-related risks and greenhouse gas emissions to help investors make informed decisions based on consistent and reliable data.
This approach is not entirely novel. SEC Chair Gary Gensler has indicated that the proposed rules are in line with recommendations of the Task Force on Climate-related Financial Disclosures, and similar requirements are in force in the European Union and other countries.
The SEC decision provides both challenges and opportunities for companies if they take the right steps today. What are some of the potential implications of the proposed rules?
The competitive advantage of digital transformation
Firms subject to the proposed requirements will benefit from partnering with technology providers who can help them capture emissions data, identify climate-driven risks in their operations and find opportunities to reduce costs.
Digitally mature companies that have mapped their supply chain and developed a unified data model will likely have a competitive advantage in terms of ramping up to meet the requirements.
Benefits to brand image and investor confidence
Climate-related disclosures can help or hurt a company’s brand image in the public sphere, as well as make it more attractive to investors and more favorable lending terms from financial institutions.
As a result, enterprises can leverage their climate-related disclosures to increase revenue and talk about how they are adapting to deal with climate risks.
For a more resilient supply chain, focus on sustainability
The pandemic showed companies that their supply chains can drive innovation and bottom-line impact, instead of being just a cost center.
The proposed SEC rules will incentivize companies to work with suppliers with more sustainable practices, thereby building greater supply chain resilience and helping companies innovate through their supply chain.
Start taking steps now to mitigate climate-related risks
In the short to medium term, there will likely be additional costs for companies as they identify how best to comply with the new rules and set up the apparatus to measure and report on emissions and risks. However, the benefits of doing so aren’t limited to just being in compliance.
Companies should consider taking action now to identify the climate risks that could affect their business, work with suppliers to capture emissions data, and establish the governance structures to manage progress toward ESG goals.
By doing so, they’ll be in a better position not only to comply with the SEC’s rules when and if they come into effect, but also to mitigate those risks and drive greater resilience and value through their supply chains.
Get the latest GEP bulletin to learn moreabout the potential challenges of the SEC proposal and how to turn them into a competitive advantage.