The future of the SEC’s climate disclosure rule is tenuous at best, but that doesn’t really matter. Sustainability reporting is here and companies should be ready, according to experts who recently spoke at Workiva’s 2024 Amplify conference in Denver.
The new rule is on pause while an appeals court considers petitions against it. Opponents argue the agency “lacked the authority to implement the rule,” CFO Brew previously reported.
And the truth is, the SEC rule is a moot point for multinational companies that do business in Europe, since they’re subject to other jurisdictions’ ESG reporting requirements, according to experts.
It’s a big world. David Peavler, a partner at Jones Day, told us he doubts the SEC climate rule will remain in place because of recent Supreme Court rulings that weakened the power of regulators. With little expected recourse in the courts, “the SEC may be content” to let others lead the way in climate reporting, he said.
Peavler noted that “compliance flows uphill,” meaning that when organizations are subject to multiple regulations on sustainability reporting, they’ll default to whichever standard is most stringent. The European Union, with its Corporate Sustainability Reporting Directive (CSRD), has a stronger rule than its American counterpart—in part because, unlike the revised SEC rule, it requires companies to report on Scope 3 emissions.
“You’re always managing and complying to the most rigorous standard…and at this point, it looks like the EU standards are going to be the most rigorous,” Peavler told the audience. “And so if you’re subject to that, and a lot of companies are going to be subject to that in the United States, you’re going to have disclosures and compliance that meets that, and that would, for sure, meet anything the SEC has proposed.”
Stateside rules. Companies not subject to the CSRD will still have climate reporting regulations to follow if they do business in states with their own climate reporting rules, namely California, and others potentially including Illinois and New York.
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With all these regulations enacted or proposed, the SEC could sit back, relax, and say to companies, “we’re not doing this; this is somebody else,” Peavler said.
Companies that aren’t subject to the CSRD, but work with organizations that are, will still be indirectly impacted because the regulation requires value chain reporting, according to Katina Curtis, audit partner at Grant Thornton.
“Even if it’s not something that’s directly impacting you by regulation, I think there’s still so many companies that are going to be subject to this because of that value chain reporting requirement,” Curtis said.
Any remaining organizations not subject to these regulations directly or indirectly may very well find themselves reporting the same data anyway due to market pressure, Peavler said.
“For that little sliver of companies that don’t fall in either of those camps, I think what you’ll find is a race to the top, in the sense that if your competitors are disclosing certain information according to certain standards, you’re probably going to want to do that,” he said. “Because whether you agree with the policies…or not, capital tends to follow those kinds of things.”
Boards of directors are also more interested in their companies disclosing climate information as part of a broader move toward ESG reporting, according to Jonathan Johnson, former CEO of Overstock.com and a board member of JM Smucker Co. He added that ESG reporting in some areas is becoming “table stakes.”
“The boards I sit on talk about, how do we do what’s right for the planet, for our suppliers, for our consumers? A lot of our customers are demanding it,” Johnson said. “So it’s more than just, ‘OK, we’ve got to check a box.’ It’s, ‘We want to do the right thing.’”