Efforts to curb climate change are a long game. Still, specific developments can energize both sustainability champions and opponents. A recent announcement from the US Securities and Exchange Commission (SEC) falls into this category.
On March 6, the SEC released a much-anticipated new rule that would require US companies to disclose losses from extreme weather events caused by climate change. Larger companies would also have to report on greenhouse gas emissions generated by their operations. These new requirements are set to take effect in 2025.
To ensure the regulations would be approved by SEC commissioners—the vote was 3-2, along party lines—the new rule is notably weaker than initially proposed more than two years ago. Commissioners removed the requirement for companies to report on their Scope 3 emissions (those generated by activities throughout the supply chain). This development disappointed climate groups, which rightly cited Scope 3 emissions as the source of three-quarters of all emissions.
Foes of the regulation responded with the expected outcry. Industry groups and attorneys general of states with large fossil fuel sectors, among others, have already threatened legal action to delay the rule’s implementation.
It may seem urgent progress is once again being forestalled by intransigent opposition. However, this rule and any subsequent legal proceedings are unlikely to reverse encouraging trends on sustainability reporting. Three realities bear this out.
- Other countries are far ahead of US regulations
The EU’s Corporate Sustainability Reporting Directive (CSRD), passed in 2023, already requires large European companies, as well as those doing business in the EU, to report their impact on the environment starting in 2025. Multinational corporations doing business in the EU—including more than 3,000 US companies—are already on the hook to meet these guidelines, which are much more expansive than the SEC’s rule. Further, China and the State of California have also passed their own reporting standards, and companies are already preparing to meet them.
- Many large companies have taken matters into their own hands
To get ahead of these impending rules, a number of companies have already been gathering data on their activities and voluntarily sharing this information. For example, the World Economic Forum partnered with the Big Four accounting firms to develop Stakeholder Metrics, which seek to promote the alignment of existing reporting frameworks. Since 2021, more than 160 companies, from Accenture to Fidelity to Unilever, have signed on.
- Stakeholders beyond regulators are clamoring for sustainability reporting
Companies voluntarily publishing sustainability reports and sharing data on their emissions aren’t doing it solely for altruistic reasons. Investors want to understand the full range of risks companies face, including from climate change. Consumers who care about climate change want to spend their money with environmentally responsible companies. And workers increasingly care about the environmental practices of prospective employers. These expectations are unlikely to wane going forward.
As companies seek to adapt to the new sustainability reporting rule, how should they approach communications? A few actions can help.
- Plan for data gathering and reporting now. One reason for business opposition to the new SEC rule is the massive increase in information companies will have to track down. Organizations that have been waiting for greater clarity should develop a plan to mobilize their internal resources in the most efficient way. And because the first time producing a report requires much more time than expected, they should start early and build timelines with lots of buffer.
- Make a virtue of necessity. Even though the SEC watered down its rule, the reality is that environmental reporting is now here to stay. Making your operations more sustainable and energy efficient can actually be a competitive advantage, reducing costs and waste, and it can also boost your brand equity among certain eco-conscious consumers and corporate partners looking to improve the “greenness” of their supply chains.
- Develop a comprehensive strategy for communicating to stakeholders. Companies should recognize meeting reporting deadlines is just the first step: they then must tailor their messaging to different groups. Higher standards for reporting will likely raise expectations for clarity and accountability. The upside is such efforts can have indirect benefits on reputation building, marketing, and talent attraction. Keep the messages simple and credible. Being too breathless about how sustainable the company’s efforts are risks the accusation of “greenwashing.” The best strategy is to stay humble and factual about what you are actually changing.
The long-overdue SEC rule represents progress, but companies focusing too much on its implications will miss the larger trends in sustainability reporting. They should instead look to global leaders that are proactively sharing information on their sustainability efforts and incorporating these messages into their broader communications strategy.
