SEC & Climate-Related Disclosures

SEC & Climate-Related Disclosures

Yesterday – after years and years of posturing – the SEC released guidelines for their first material climate-related disclosures. A link to their summary can be found here:

Late last year Team Energize hired Lauren Densham as our Head of Impact and ESG. After reviewing the facts from the announcement she shared the following review with our team and I thought it was a great summary,

My immediate two cents:

  • They don’t mention TCFD but the disclosure requirements are largely aligned to what TCFD requires. Starting in 2023 (for big companies) and starting in 2024 (smaller companies) companies must disclose:
    • Plans for assessing and managing exposure to physical and transition risk (including strategy and governance)
    • Carbon footprint of operations
      • Scope 1
      • Scope 2
      • Scope 3 (where material, or the company is setting Scope 3 targets) – I’m sure there will be much debate on what constitutes “material”
    • If the company has set a net zero or other climate goal they need to report on how they plan to meet it and their progress to date in doing so
  • Other interesting pieces:
    • They are requiring that companies have 3rd party assurance on climate disclosures starting in 2024 and increasing in scope to 2026 – This is a big deal. A very small percentage of companies have any assurance on their data. This will be gold rush for firms that offer this service (e.g. Big 4)
    • They are also asking for more detail about the use of RECs and offsets in meeting emissions targets, there will likely be increased scrutiny here
    • They are not requiring that companies use scenario analysis but that they need to disclose their methodologies if they do 
    • In line with current practice, the regulations are focused on the risk of climate change to a company’s operations rather than the risk of the company’s operations to the climate (the latter is called double materiality). There has been a lot of talk about double materiality in the EU, not yet in the US. 
    • They are asking for companies to disclose the climate risks and assumptions they have used their financial statements vs what is in the climate reporting (believe this is a move to get companies to more closely align the two)

I think pt #4 is a great reminder for anyone new to climate-related investing. The SEC’s concern is on business performance FROM climate change… not necessarily a businesses impact ON climate change. Sure they will start being more critical of offsets (good for our investment into NCX) but only to the extent companies have volunteered to hit targets or for the required subset of industries.

At Energize we have made a number of investments that are aligned to greater climate and risk transparency. And specifically, few firms in the world are as well positioned as Jupiter Intelligence to provide climate risk analysis. Led by Rich Sorkin, Jupiter shows which assets within a company are exposed to climate risks, and that data is what the SEC wants documented and assured. We led their Series B in 2019 and believe Jupiter is a generational company… and I am glad the market is beginning to realize the company’s potential.

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