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From Voluntary to Mandatory: How Companies Can Incorporate Climate Risk to Increase Resilience and Prepare for SEC Required Climate Disclosures

October 26, 2022 | Insights, News,

  To prepare for mandatory climate disclosure, companies can:

  1. Assess exposure through a climate-risk assessment, especially if one has not already been completed in the past
  2. Strengthen organizational action on climate risk by building on existing disclosure practices and incorporating those practices into the organization’s Enterprise Risk Management (ERM) processes
  3. Leverage current climate risk disclosures, like TCFD reports or CDP responses
  4. Ensure the right business functions are engaged in assessing and managing exposure to climate risk to enable a company-wide approach, this may include partnering with functions such as Legal, Finance, Audit, Supply Chain, among others


The pending SEC ruling on The Enhancement and Standardization of Climate-Related Disclosures for Investors, once finalized, will make climate risk disclosures mandatory for all companies that are publicly traded in the United States. Under the proposed rule, impacted companies are expected to disclose the following:

  1. Direct (Scope 1) and indirect (Scope 2) GHG emissions;
  2. Value-chain emissions from upstream and downstream activities (Scope 3), if material;
  3. Impact of climate-related events and transition activities on the line items of the company’s consolidated financial statements;
  4. Oversight and governance of climate-related risks by the company’s board and management;
  5. Past, present, and potential future impact of climate risk on business strategy and outlook; and
  6. Climate-related goals and targets, and the timelines, plans for achieving, and progress toward those goals and targets.

Though the exact details of the rule have not yet been finalized, your company can start taking proactive steps to ensure its disclosure and reporting initiatives align with SEC requirements by leveraging voluntary disclosure practices, like those related to Task Force on Climate-Related Financial Disclosures (TCFD) and Climate Disclosure Project (CDP) reporting to build a foundation for mandatory climate risk reporting. In formalizing these processes, companies can ensure that they are prepared to meet regulatory requirements and benefit from incorporating climate metrics, and specifically climate risk, into their annual disclosures.

Companies can leverage CDP scoring to understand where their gaps are in climate-related disclosures to prioritize efforts to advance disclosure

Leveraging existing processes and voluntary disclosures

In preparing to comply with SEC mandated disclosures, you can use and build onto your company’s existing CDP and TCFD responses. The proposed SEC ruling is expected to align closely to the information requested by these frameworks, so by aligning with these voluntary disclosures, your company will have done much of the legwork to build a strong foundation for compliance with the SEC’s anticipated mandatory climate risk disclosures.

Companies can leverage CDP scoring to understand where their gaps are in climate-related disclosures to prioritize efforts to advance disclosure. Since CDP and TCFD are closely aligned, efforts to improve responses to one framework will likely advance alignment with the other. Your organization can use these frameworks and specific guidance on governance, strategy, risk management, and metrics and targets to build internal capacity and enterprise resilience to climate impacts.

Aligning internal processes and structures

To continue to strengthen your company’s understanding of its exposure to climate risk, you can begin to incorporate an assessment of climate risk into your company’s ERM processes. To allow for timely filing of your company’s 10-K, organizations will need to update project timelines related to data collection for climate disclosure. This means that the timelines to complete greenhouse gas inventories and climate risk assessments may need to be adjusted to ensure completion prior to and aligning with the SEC filing date rather than with the organization’s sustainability report publication date.

Historically, the Sustainability or Corporate Social Responsibility team would have primary oversight of climate-related reporting, but in light of the SEC’s move to mandate such disclosure, organizations will need to establish a more comprehensive company-wide approach to climate reporting. Fully incorporating climate into an organization requires management and leadership of diverse departments to understand and take responsibility for managing climate risk.

The Sustainability team will need to partner with relevant department managers to collaboratively ensure the information or data underlying mandatory disclosure requirements is available for timely filing of its 10-K. Pertinent business units engaging in these efforts might include: Sustainability/ESG, Finance, Risk, Audit, and Legal. Individuals from the above-mentioned teams can form a cross-functional team and meet regularly to ensure the company is prepared to disclose and that the required information is adequately managed through ERM processes and data governance structures. To promote accountability for managing risk within your organization, each business function can assign responsibility for specific risks relevant to that division. Companies can also consider connecting personal incentives, like bonuses and promotions, to meeting climate ambitions and targets to ensure company-wide alignment on climate.  Finally, to ensure competence on climate risk and climate change, the organization can ensure that those responsible for identifying and managing climate risk and at least one board member receive subject-matter training.

Whether or not a company will be subject to the SEC’s proposed rule, all organizations can benefit from undergoing a climate risk assessment

A starting point: understanding exposure to climate risk

For companies that have not previously reported in alignment with the TCFD Framework, it is important to ensure that corporate leadership is informed and educated on climate risk and is aware of the organization’s material climate risks and status of management methods. Companies can conduct a climate risk assessment to determine their exposure to physical and transitional climate risks and enable them to implement strategies that will increase company resilience to those risks. Insights provided through a climate risk assessment can inform business strategy, including understanding where targeted investments or risk management practices are needed to bolster resilience to climate impacts. Gaining a thorough understanding of existing exposure to climate risk through a climate risk assessment will also make a company better positioned to disclose under the proposed rule. Whether or not a company will be subject to the SEC’s proposed rule, all organizations can benefit from undergoing a climate risk assessment. This will allow to company to be better able to anticipate and manage organizational risk, incorporate findings into annual CDP reports, and understand what metrics they should be tracking.


Engaging climate experts

Considering the uncertainty inherent in preparing to disclose under the pending SEC ruling, you may wish to engage with climate risk experts. Anthesis has expertise in voluntary climate-related reporting and can support your organization in advancing CDP and TCFD disclosures in preparation for mandatory disclosure requirements. The Anthesis Climate Risk team specializes in projects that support companies through the process of assessing and reporting their exposure to climate risks.

In preparing for SEC-mandated climate disclosure, assessing your company’s vulnerability to climate risk is the first step. Our Climate Risk team specializes in supporting organizations in identifying, assessing, and managing exposure to climate risk through our three-pronged approach, which involves:

  1. Climate Screening;
  2. Climate Risk Modeling through Scenario Analysis; and
  3. Climate Risk Strategy and Reporting.


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