Issue link: https://resources.tangoanalytics.com/i/1507481
LITIGATION WHY IS THE SEC INVOLVED IN CLIMATE DISCLOSURE? The SEC's purpose is to protect investors from fraudulent and manipulative practices and to ensure that investors are provided with full, transparent, and truthful information that is deemed material to the financial bottom lines. Investors want to understand the climate risks of their investments and have been quasi-mandating such data for years across public and private markets. Because relevant sustainability information is now widely accepted and agreed upon as material to business financial risk, the SEC is attempting to formally standardize what is already occurring across the board from investor-driven demand: disclosing sustainability data. Rather than an attempt to uproot the long-standing business practices of corporations, the rule is intended to protect companies and investors alike by ensuring that everyone is asked the same questions and that all the answers are legally reliable and easy to find. WHAT DOES THE EXCLUSION OF SCOPE 3 MEAN FOR REPORTING? Although Scope 3 was dropped from the final ruling, all signals point towards Scope 3 being a regulatory requirement in other jurisdictions and a market norm. Furthermore, companies must disclose material climate risks and many of these risks occur in value chain activities (Scope 3). In this way, the ruling compels companies to assess their value chains and Scope 3 impact, without requiring costly and difficult Scope 3 emissions disclosure. The ESRSs, ISSB, and California law all include scope 3; they recognize that a carbon footprint without scope 3 is not only incomplete, it can also be misleading. Investors also know that Scope 3 is, for many companies, the vast majority of their overall emissions, and as more and more global companies are required to disclose Scope 3, others will be expected to follow. Even in jurisdictions where scope 3 might not be required, companies will want to think carefully about whether the disclosure is necessary to round out the picture and prevent the required disclosures from being misleading. Sustainability & Energy Management Simplified