The Securities and Exchange Commission is expected to finalize its proposed rule on climate-related disclosures by the end of the year, and many public companies are already getting ready to comply with the upcoming requirements. But one of the main questions since the SEC unveiled the proposed rule over a year ago is how far it will go. Another issue is finding qualified people to do the job.
The proposed rule would require companies to disclose information about their direct greenhouse gas emissions, known as Scope 1, and indirect emissions from purchased electricity or other forms of energy, known as Scope 2. They would also be required to disclose GHG emissions from upstream and downstream activities in their value chain, known as Scope 3, that is, from suppliers and customers, if they’re material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions. The requirement to include Scope 3 disclosures has generated considerable pushback in the thousands of comments generated by the proposal, however, and the SEC may ultimately drop it from the final rule. But a new survey shows that many companies are already prepared to report on Scopes 1 and 2.
For a report released Monday by Financial Executives International and its Financial Education & Research Foundation in conjunction with their Current Financial Reporting Insights conference, FEI, FERF and the climate management accounting platform Persefoni polled a group of more than 50 chief accounting officers and controllers and found that 70% of the responding companies are already disclosing Scopes 1 and 2 in preparation for the new SEC rule, while 50% of the respondents are staffed up and ready for the future with finance professionals in full-time sustainability reporting roles.
Even with over 70% of the respondents said they’re already disclosing Scope 1 and 2 data, it’s not uncommon for the emissions data to be reported with a significant lag, the report noted. “In current practice, most companies’ sustainability reports are published three to six months after their annual financial reports, and emissions data can have even longer delays,” said the report.
However, in line with the current shortage of accounting talent, companies are finding it difficult to hire qualified people, especially in the relatively new field of sustainability reporting. Some 70% of the respondents cited the immediate need for internal controls talent. Nearly half the respondents (48%) plan to hire full-time employees and external consultants to support climate reporting over the next 12 months. Another solution is to train existing employees, with 53% of the respondents saying they’re already upskilling members of the finance team to support climate reporting and 25% have plans to do so. Over half (58%) cited “ESG controller” as the most commonly identified role on their finance team, while 68% named internal controls for ESG reporting as the top skill in demand, followed by sustainability disclosure preparation at 53%, and regulatory landscape knowledge at 50%.
Companies are trying to improve their headcount in the finance function and work more closely with sustainability reporting. Exactly half (50%) of the respondents indicated they’re working solely to support sustainability reporting efforts, compared with the minority of companies whose finance professionals have limited or no interaction with sustainability reporting professionals (9%).
“Our members have been long tasked with translating business events into meaningful information by way of financial reporting,” said FEI and FERF president and CEO Andrej Suskavcevic in a statement. “It is no different for sustainability reporting, where our members are again working to establish themselves as trusted business partners in strategy development and planning for the future.”
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