- Ben Desjardins
The SEC Mandatory Climate Disclosures Proposal & Its Impact on Risk Management
In another of what will be a long series of proposals related to oversight of corporate environmental impact, the U.S. Securities and Exchange Commission (SEC) recently announced its own proposal on disclosure. Joining the efforts of many other governing and regulatory bodies worldwide, including the recent Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR) out of Europe, the SEC has now stepped fully into the fray as stakeholders ranging from conservationists to institutional investors seek greater visibility into the actions of large corporations to manage their environmental impacts.
This announced proposal from the SEC has several key aspects that beyond accelerating current ESG efforts, warrant special consideration for large organizations, including:
Accountability for not only quantifying the progress towards their environmental goals, but also clear identification of the risks and opportunities to those outcomes
Requirements that will emerge from the call for more, better, standardized data that can help create a normalized view of progress across organizations
As environmental impacts are only one component the current ESG push, it is reasonable (if not responsible) for organizations to assume similar proposals that extend into other areas.
If the direction set by the SEC’s proposal moves in a similar direction to other geographies, it is also wise for organizations smaller than those within current scope to assume “scope creep” down into their realm. Unsurprisingly, the proposal has been met with immediate push-back from both sides of the aisle, and it would be wise to assume that this proposal will go through several iterations before being finalized. But it would be similarly unwise to not view this as another significant signal of accelerated involvement by regulators in ESG.
With that in mind, the SEC’s proposal also has some very specific impacts for Risk Management professionals:
The near-term need for a focus on data gathering, risk register and cataloging of controls, other common GRC or Enterprise/Integrated Risk Management practices
Regulation will be a likely driver for some (but not all) integration of ESG into Enterprise/Integrated Risk Management
This will require starting with an approach that scales bi-directionally: integration across the growing array of regulations AND that expands across various data sources covering not only environmental impacts but social as well
Again, this is an early but undoubtedly a significant step in what is growing momentum around ESG. At Archer, we believe ESG is much more than another regulatory thorn-in-the-side but is in fact one of the biggest drivers for more involvement in strategic planning for the Risk Management function.
To learn more about how Archer customers are looking at the likely near-term and longer-term impacts of ESG on the Risk Management function, watch the replay of our webinar, “3 Things Risk Managers Need to Know About ESG,” on-demand now.