Despite the Securities and Exchange Commission's (SEC) scaled-back climate-disclosure rule, finance chiefs are bracing for substantial challenges and costs in compliance efforts.
While the SEC's recent announcement mandates reporting emissions from operations and energy purchases (Scope 1 and 2), excluding certain indirect emissions, the omission of Scope 3 reporting has somewhat alleviated concerns among companies regarding complexity and cost.
However, navigating the disclosure of Scope 1 and 2 emissions for the first time presents formidable hurdles for many organizations. Eric Juergens, a corporate partner at Debevoise & Plimpton, emphasizes the significant amount of work still ahead for companies in deciphering their disclosures.
Steve Soter, VP at Workiva, underscores that although the revised rule reduces the effort required compared to earlier proposals, achieving a high level of assurance on emissions data remains a daunting task. The collaborative effort between sustainability and financial-reporting teams is crucial, necessitating joint ownership of climate data under the new regulations.
The implementation of these requirements may drive companies to invest in technology and seek consultants' assistance to bolster their controls and facilitate reviews, according to industry experts.
Susan Mac Cormac, a partner at Morrison & Foerster, highlights the need for independent verification, potentially involving additional costs for companies not already engaging accounting or consulting firms.
Debbie Clifford, CFO of Autodesk, reveals that the company's prior investments in enhancing team skills and capacity have positioned it well for compliance. While specific SEC requirements, such as disclosures in audited financial statement footnotes, must be addressed, Clifford expresses confidence that existing investments will suffice.
The SEC estimates average annual compliance costs ranging from under $197,000 to over $739,000 over the first decade, a factor contributing to the growing hesitancy among companies to enter public markets, as noted by Jay Clayton, former SEC chairman and current senior policy adviser at Sullivan & Cromwell.
Bob Schrader, CFO of Paychex, supports the exclusion of Scope 3 reporting requirements, citing inherent difficulties in quantifying emissions accurately. Many public companies would have struggled to meet the stringent accuracy standards.
