Family Forest Blog

Climate Disclosure Rules Are Still Evolving, But Companies Can’t Wait to Act

Nate Truitt, EVP of Climate Funding

February 28, 2024

Hardwood Forests

Sun beams through the canopy of a hardwood forest.

Just this week, news broke that the U.S. Securities and Exchange Commission (SEC) will likely pare back their climate-risk disclosure rules, including cutting reporting requirements around Scope 3 emissions, or those that arise indirectly from business operations. After years of discussions about what these rules will mean for the sector and how companies can and should meet their requirements, many sustainability professionals may be thinking all those conversations were a waste of time.   

Yes, the SEC is not moving forward with aggressive climate disclosure requirements. But California and Europe are – and more jurisdictions will surely follow. Meanwhile, the number of countries that are putting some kind of price on carbon also continues to rise. At the same time, an alphabet soup of civil society institutions – the IC-VCM, SBTi, GHGP, VCMi – all have their own specific rules that seek to govern part of corporate climate action, from setting company targets to emissions accounting to the type of carbon credits they can and should buy.    

And to add to the confusion, all these rules (and all the rule makers) are continuously revising and updating standards to meet the realities of the evolving climate crisis. Against the backdrop of this undeniable trend, the SEC’s decision certainly does not let anyone off the hook in terms of climate disclosures.   

It’s critical for companies to understand this evolving regulatory landscape. Set aside all the acronyms and thousands of pages of technical guidance for a moment.  What these organizations and standards represent collectively is a question to companies on behalf of human civilization: “Are you operating your business consistent with our continued, sustainable existence on this planet?”    

The rules and regulations are complex because answering that question is complex. The rules are constantly changing because our scientific understanding of what it means to answer that question is constantly changing. But the question itself is not a difficult one to understand, and answering it affirmatively is essential for corporate strategy in the 21st century. Clients, employees, stakeholders, and investors will increasingly demand assurance that their company can answer that question with a clear and resolute “yes.”  And if they can’t, those companies will increasingly be unable to compete with those that can.    

Many companies fall into the trap of thinking it’s too difficult to plan for, invest in, or take certain climate actions because the regulatory frameworks are uncertain, somewhat controversial, and constantly changing. To the contrary, as the impacts of the climate crisis are increasingly felt, companies should expect pressure from all their stakeholders to intensify. Robust and transparent public disclosure of any company’s emissions will become table stakes for doing business in the majority of the world. Companies can’t risk waiting to act until the regulatory landscape solidifies.  

The road to climate disclosure for companies may be difficult, but is absolutely essential – not only for the sake of the climate but for the sake of your company’s future. Without climate accountability, by 2030 your customers, employees, and investors will take their business, their talents, and their investment elsewhere.  

So, what should a company do?  Luckily, unlike the evolving regulatory landscape, the answer remains clear and simple:  

  1. Companies must take immediate action to identify, reduce and / or eliminate emissions in their operations and value chain. This is by far the most important action, and the one that will be rewarded most by evolving market expectations. 

  2. Companies must begin to address emissions they can’t yet reduce or eliminate by purchasing high-quality carbon credits. This is not about becoming “carbon neutral” – this is about holding companies accountable for the emissions currently unavoidable. This will increasingly become essential in assuring stakeholders that companies are on the right path and can be trusted with their business, their talents, and their investment. 

  3. Simultaneously to the above actions, companies must improve the systems used to inventory emissions to more accurately track and report progress. Note this comes last, NOT first – companies can and should take action to reduce emissions and compensate for unavoidable ones without 100% accuracy. In climate issues, trajectory is much more important than position.   

Even as regulations and standards around climate disclosure continue to change, the need for companies to answer to their stakeholders will not. In the face of climate catastrophe and a human population looking for solutions now, it’s in companies’ best interest to prioritize climate action first, followed closely by tracking and reporting that action. The planet can’t wait. 

Nate Truitt, EVP of Climate Funding

February 28, 2024

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