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A Multi-Year Delay To The SEC Climate Disclosure Rule Would Reshape Climate Tech Growth Strategies

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A Multi-Year Delay To The SEC Climate Disclosure Rule Would Reshape Climate Tech Growth Strategies

In March this year the SEC published its proposed rule on climate disclosures. Several elements of the proposed rule surprised climate policy experts. Chorus howls of pain from CFOs and General Counsels. Even organizations like Nasdaq which offer their own climate and ESG data and software products publicly opposed the rule. In total, the SEC received more than 14,000 comment letters – the most for any proposed rule – as part of its public consultation which closed on June 17. Our recent analysis identified multiple challenges for firms planning to comply with the rule. But how likely is it to come into effect and if so when?

The first hurdle for the SEC is that it needs to publish the final rule in the Federal Register by mid-October if it intends to have listed companies comply for their 2023 fiscal year. This abrupt start date – just two and a half months after the final rule is published – seems highly improbable. What is more likely is a January 1, 2024 start day with the first reports due in early 2025. But even that may not be feasible. Following the US Supreme Court’s June 30 ruling on the “major decisions basis” that the US EPA can not require energy companies to reduce greenhouse gas emissions the SEC may not be able to proceed at all. Opposition to the rule has been stiff. Countering the argument that the SEC climate rule may not be implemented at all is the insertion of terms into the Inflation Reduction Act which became law on August 16, that directly refer to greenhouse gas emissions as a regulated pollutant. This could undermine the argument that government agencies do not have authority from Congress to regulate GHG emissions.

By contrast, the European Union is steaming ahead. The EU Corporate Sustainability Reporting (CSR) directive has a confirmed start date of January 1, 2024. This includes TCFD-aligned climate disclosures along with many other required ESG disclosures and applies to approximately 12,000 large firms headquartered in the EU or listed on EU stock markets. What’s more, the EU CSR directive is a TCFD+ reporting rule. According to a framework comparison by the European Financial Reporting Advisory Group, the European Sustainability Reporting Standards (the technical rules for the CSR directive), go beyond the standard TCFD recommendations. They require firms to: assess impact materiality (on planet and society) in addition to financial materiality (risks and opportunities for the company); provide more detail on policies, transition plans, stranded assets, financial risks and financial liabilities; provide more transparency on GHG emissions calculations and distinguish between removal offsets and avoidance offsets; calculate sales, capex and opex in relation to the EU Taxonomy; and distinguish between general climate-related targets, GHG emission reduction targets and net zero targets.

Sustainability practice leaders at consulting firms and CEOs of carbon management software providers or climate risk analytics businesses should take note. The EU is where the action is guaranteed to be for climate disclosure consulting, carbon accounting, auditing and integration with financial reporting. But this ‘EU is better than the US’ logic does not apply to the market for net zero programme implementation. The estimated $370 billion of GHG emissions reduction incentives packaged into the Inflation Reduction Act will trigger a boom in US decarbonization spending. 
 

David Metcalfe

CEO

David is the CEO of Verdantix and co-founded the firm in 2008. Based on his 20 years of experience in technology strategy and research roles he provides guidance on digital strategies to C-level executives at technology providers, partners at private equity firms and function heads at large corporations. His current focus is on helping clients understand their market opportunity tied to ESG investment trends and their impact on corporate sustainability strategies. During his 12 years running Verdantix – including 4 leading the New York office – he has helped dozens of clients grow their businesses through fund raising, acquisitions and international growth. David was previously SVP Research at Forrester and Head of Analysis & Forecasting at BT. He holds a PhD from Cambridge University and also worked as a Research Associate at the Harvard Business School.