In March 2022, the Security Exchange Commission (SEC), the entity that regulates and oversees the options market and the US stock exchange, issued proposed regulations to standardize disclosures related to corporate sustainability, which integrate greenhouse gas (GHG) emissions, climate-related risks and how companies are identifying and mitigating them.
If these recommendations are approved, companies will be required by compliance to collect and publish data relevant to environmental sustainability just as they already do with their financial reporting.
This SEC proposal foresees a strict regulation of ESG (environmental, social and governance) disclosure standards for the coming years, as shareholders and institutional investors increasingly require non-financial information for the placement of their assets.
The SEC proposal states that 10-K filers and foreign private issuers filing 20-Fs would be required to disclose Scope 1 and 2 issues in fiscal year 2023, followed by Scope 3 issues in 2024.
As context, greenhouse gas emissions are divided into three categories for companies and organizations: Scope 1, Scope 2 and Scope 3. Scope 1 emissions (direct emissions) refer to fuels used by the company. Scope 2 emissions (indirect emissions) correspond to the consumption derived from the use of electrical energy. And, Scope 3 emissions (also called indirect emissions) are those that are not produced within the company, such as the supply chain, transportation of personnel, flights derived from company activities and operations, etc.
Regulations will be a subject of continuous change, which can mean a risk for the company if not properly managed. Therefore, it is necessary to consider implementing a correct management of ESG issues and business sustainability within organizations to acquire resilience for the future.