At least the SEC is paying attention to Greenhouse Gas Emissions
If you missed it, the U.S. Securities & Exchange Commission (SEC) published its final rule on climate-related disclosure by publicly-traded companies in March of this year. In a nutshell, the rule, some two years and 24,000 comment letters in the making, will require companies to report on the “materiality” of greenhouse gas related topics in regulatory filings.
The rule requires Scope 3 disclosure (more on that later) if material or included in climate-related targets. The SEC is also requiring companies to report on all climate-related targets or goals, including the use of any CO2 offsets or credits to achieve such goals.
While a less-engaged student of sustainable investing might be nodding off at this point, stakeholders looking for more data-driven analysis of a company’s climate-related performance are paying close attention. We might suggest that students of all kinds of investing get their heads off their desks and start paying close attention. The fact is, quality greenhouse gas (GHG) emissions reporting is becoming an important part of doing business for global companies.
Anyone seen this before?
Those who’ve done their homework might recall that the Greenhouse Gas Protocol, which provides arguably the most widely recognized accounting standards for emissions, categorizes GHG emissions into three ‘scopes.’
- Scope 1 covers direct emissions from activities within a company’s control. These activities would include things like onsite fuel combustion from buildings and company vehicles as well as manufacturing and process emissions and direct emissions from agriculture.
- Scope 2 covers indirect emissions from any electricity, heat, or steam a company purchases and uses. By using the energy, an organization is indirectly responsible for the release of GHG emissions.
- Scope 3 includes any other indirect emissions from sources outside of a company’s direct control. The GHG Protocol’s Scope 3 Standard categorizes emissions across fifteen different categories covering business activities common to many organizations, including purchased goods and services, business travel, and waste in operations. The rule also encompasses activities like leased assets, transport and distribution, the use and disposal of sold products, and the impact of any investments.
Scope 3, in other words, is a very big deal. And it will affect just about every company we students of the industry might care to invest in.
Anyone know the effects?
To date, GHG reporting has been shaped by voluntary standards, frameworks, and ratings designed to help companies measure progress and achieve sustainability goals. But as regulators in the U.S. and the EU begin requiring climate-related disclosures like Scope 3, all of this will move quickly from voluntary to more standardized and regulated requirements.
From where we sit, 2024 is shaping up to be a defining moment for GHG reporting that is central to evolving regulation. Savvy companies will begin setting a broad strategy and refine their approach as data improves. GHG emissions data and reporting methodologies continue to evolve, and in some cases do not yet exist.
It’s reasonable to think that effective corporate leaders and finance teams will recognize that measuring and disclosing GHG emissions is a practical business challenge, maybe even a significant business opportunity. In our view, leading companies that respond to the challenge of Scope 3 will go a long way toward maximizing long-term value for shareholders. For our part, we’re working towards identifying them.
https://www.nasdaq.com/articles/business-needs-to-wake-up-to-the-reality-of-ghg-emissions-reporting
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