Disclosure of carbon dioxide emissions has been considered internationally, with Belgium, Canada, Chile, France, Japan, New Zealand, Sweden, and the UK among the countries that require financial disclosures in line with the Climate Action Task Force financial information with TCFD).
The United States follows the proposed rule of the Securities and Exchange Commission, Enhancement and Standardization of Climate Related Disclosures for Investors, which states that the climate crisis exposes companies to financial risks and forces them to disclose their emissions and future prospects under climate change in the world.
Some of the world’s biggest investors are participating. For example, BlackRock issued a statement in support of the US rule stating that the era of voluntary and unregulated disclosure is coming to an end. Others agree. “The business case has been made, and measuring climate risks and emissions is now seen as a preparation tool,” says Elizabeth Small, general counsel and policy director at the nonprofit CDP.
With this transition to a world of mandatory disclosure, certain developments will surely follow.
“Awareness is a critical first step,” said Ceres CEO Steven Rothstein. “That alone won’t solve climate risk.” “We can’t solve this problem unless we have people and systems to measure it.”
One expected development is an increase in the number of companies hiring professionals and seeking technologies that support what is known as MRV (measurement, reporting, and verification) to keep up with the demands of regulators, investors, and customers for accurate carbon emissions data.
The tide is changeable and swift.
The landscape can be confusing and affect businesses in different ways. In general, standardization is stressed to reduce the misjudgment of climate risk by investors and to ensure that the information provided by companies is comparable and “useful for decision-making.” TCFD and the GHG Protocol, which standardized greenhouse gas reports, are the basic principles for future reporting practices. Key actors, such as the International Sustainability Standards Council, play an important role in managing and monitoring these standards to further harmonise climate data.
Scope 3 emissions—from supply chains and customer use—are notoriously difficult to disclose, as they require accurate data collection from suppliers and suppliers of raw materials. Be prepared for increased regulatory and disclosure expectations in this regard in the near future.
Corporate carbon disclosures in the United States are expected to get a boost thanks to a proposed federal supplier climate risk and sustainability rule that uses government purchasing power to increase accountability in its supply chain. It requires federal suppliers and contractors with annual government contracts over $7.5 million to report their scope 1 and 2 emissions, and suppliers with annual contracts over $50 million to report their scope 3 emissions and determine science-based emissions targets.
Although there are still significant gaps in Scope 3 disclosures in these proposals, “we can expect Scope 3 emissions commitments and disclosures to explode in the coming years due to the scale of their impact,” said Pankaj Bhatia, director of global greenhouse gases at the World Resources Institute protocol manager.
The tide is changeable and swift. Companies that go with the flow, rather than waiting to make changes after the regulations become law, will have a smoother journey once disclosure becomes mandatory.