What is the SEC's New Ruling on Climate Disclosures?

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The SEC's recent ruling mandates that publicly traded companies disclose their direct (Scope 1) and indirect emissions (Scope 2), and, where relevant, other indirect (Scope 3) emissions. This initiative is part of a broader effort to enhance transparency in how businesses report their impact on the environment. The ruling aims to provide stakeholders, including investors and the public, with a clearer picture of a company’s environmental footprint and risk management strategies.

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What type of companies need to disclose Scope 1 and 2 emissions?

The SEC is saying that not all companies are required to report their Scope 1 and 2 emissions.

Instead, a company must disclose these emissions if they are considered material to their business. "Material" means that the emissions have a significant impact on the company's financial position or operations, which could influence an investor’s decision-making.

The requirement to disclose Scopes 1 and 2 emissions applies only to:

• LAF (Large Accelerated Filers): Companies with a public float of $700 million or more.
• AF (Accelerated Filers): Companies with a public float between $75 million and $700 million.

The rule specifically excludes Small Reporting Companies (SRC) and Emerging Growth Companies (EGC) from the mandate.

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Scope of emissions reporting

LAFs and AFs need to report Scope 1 (direct emissions from owned or controlled sources, e.g., emissions from company-owned vehicles or facilities) and Scope 2 (indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company) emissions.

Reporting of Scope 3 emissions (emissions from upstream and downstream activities in a company’s value chain) would be required if they are material, or if the company has set a public target that includes Scope 3 emissions.

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When do companies have to start reporting?

Compliance dates for the rules will be phased in for all registrants, with the compliance date dependent on the registrant’s filer status. The first ones to disclose Scope 1 and 2 emissions for 2024 are LAFs (Large Accelerated Filers) starting January 1, 2025.

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How do companies have to report to comply with SEC’s climate disclosure rules?

The rules require companies to include climate-related disclosures in their registration statements and periodic reports, which are filed with the SEC. The disclosures need to cover greenhouse gas emissions, climate-related risks that are likely to have a material impact on the business, and how these risks are being managed.

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Why is SEC’s ruling significant?

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This ruling marks a pivotal development for corporate responsibility and investor transparency, setting a precedent for financial and environmental accountability. The disclosure requirements are designed to influence investment decisions and corporate behavior significantly, promoting a shift towards more sustainable practices. For companies, this means adapting to a landscape where environmental impacts are as scrutinized as financial metrics.

This SEC initiative complements other regulatory measures such as New York City’s Local Law 97, which imposes strict emissions limits on buildings, and Senate Bill 253, which mandates climate risk reporting. These regulations collectively enhance the transparency and sustainability of business operations across the U.S., showcasing a broader legislative move towards environmental accountability.

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Challenges presented by the SEC Ruling

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Adapting to the SEC’s new standards poses several challenges for businesses:

• Data complexity and volume: Companies must manage and analyze large volumes of data related to their environmental impact. Navigating the vast scale and complexity of data throughout a company’s operations and value chain represents a formidable challenge.
• Compliance and reporting: Many organizations find themselves at a crossroads, lacking the in-house capabilities to accurately assess and report on climate-related information.
• Strategic integration: This regulation requires more than just reporting; it calls for a proactive strategy that embeds sustainability deep within the core business model.

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How Ento's solutions facilitate compliance and sustainable business practices

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At the forefront of innovation, Ento’s AI-driven solutions empower businesses to meet these rigorous new standards effectively and efficiently. Our platform leverages advanced AI technology to simplify the complexities of data management and environmental risk assessment, making it easier for businesses to comply with the SEC's regulations:

• Automated data management: Ento’s solutions automate the collection and analysis of extensive environmental data, ensuring accuracy and efficiency.
• Expert-level reporting: Our platform streamlines the creation of detailed disclosures on your climate-related endeavors, ensuring all necessary information is meticulously compiled for SEC filings.
• Strategic planning support: We guide companies in formulating and implementing effective sustainability strategies that align with their business goals and the new regulatory landscape.

Businesses located in the United States can seamlessly and securely upload their data via our integration with UtilityAPI.  It makes the process of accessing energy consumption data effortless hassle-free – all completely free of charge and just by logging on the system with the customers existing login credentials to their local utility.

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Conclusion: Empowering your business with strategic climate disclosure compliance

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In this new era of mandatory climate disclosures, it's crucial for companies to equip themselves with the tools and strategies that enable not just compliance but also strategic advantage. Ento’s AI-driven solutions offer a pathway to seamlessly integrate advanced climate disclosure practices into your business operations to support your journey towards sustainable growth, corporate environmental responsibility, and enhanced investor trust.

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Ready to transform your climate disclosures?

Discover how Ento can elevate your company’s approach to meet the SEC's rigorous climate-related disclosure requirements. Contact us today to explore our solutions or schedule a demo.

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