How the SEC's climate change rules unlock hidden value for your business

Your CPA and Chief Financial Officer have advised you that the Securities and Exchange Commission (SEC) has issued final climate risk disclosure rules and that your business will need to take a number of steps to comply with them. said. Additionally, the state of California, where you have a large business, recently enacted two climate-related laws that will require you to comply with them as well. Your stress level increases and you wonder what it's doing to you. We've known these rules were coming since the SEC proposed them two years ago, but now they're here. Policies, regulations, reporting requirements, etc. may be dizzying, but they cannot be ignored.

So?

For an elegant introduction to what business leaders need to do and where the opportunities lie, I am an Audit and Assurance Partner at Deloitte and review the firm's Sustainability and ESG Services ( We spoke with Kristen Sullivan, head of the Environmental, Social and Governance Department. She also serves as the firm's Global Audit and Assurance Sustainability and Climate Change Services Leader and Practice Leader for the Integrated Reporting Community.

Why did the SEC issue these rules?

The SEC introduced these climate risk disclosure rules because investors are aware of the economic impact of extreme weather events. The National Oceanic and Atmospheric Administration (NOAA) reported that 2023 had the highest number of billion-dollar extreme weather events in a single year. Twenty-eight cases resulted in damages of more than $93 billion.

Investors are seeing the financial impacts of climate change, including loss and damage, reconstruction, payroll costs, and property damage. We note that some companies report in more detail than others, and accordingly, investors are I'm looking for sex. Timely data on these issues, as Christina Wyatt explained to me when the proposed climate risk disclosure rules were announced. She led her SEC task force that developed these proposed rules.

chance

While these rules may cloud your eyes and raise your blood pressure, you can view the need to obtain and report what the SEC (and the State of California) want as an opportunity rather than just a burden . The data you collect in the process can help you identify inefficiencies and market opportunities that can provide a competitive advantage and, in turn, impact your bottom line.

This is especially true today. That's because your company could take advantage of nearly $3 trillion in new federal financial incentives from three parts: the Control of Inflation, Infrastructure, CHIPS, and Science Acts.

“This is a pivotal moment,” Sullivan said in an exclusive interview. “Regulation can really be a catalyst for change and business transformation, because this goes far beyond disclosure and compliance practices.” He explained.

“It is absolutely critical that we have more discipline and rigor around these disclosure targets, in order to bring to the surface in a more timely manner where risk disruptions may emerge, the mechanisms that emerge from this, When you think about infrastructure, when you think about data, they give you insights like “choices you can make.'' ” They are also an opportunity to further integrate the organization's capabilities, she said.

It can also reveal your competitive advantage. Sullivan continued, “How many of our clients are using this to instill discipline, rigor, and just infrastructure to better capture and identify strategic opportunities before their competitors. We're talking about it,” he added.

these build trust

Disclosure builds trust with all of your organization's stakeholders. Independent verification or assurance by companies like Deloitte of climate-related financial data (and greenhouse gas emissions, if applicable), as required by SEC rules, increases that confidence.

There is no perfect entity. Demonstrating progress toward an organization's strategic goals helps employees, customers, suppliers, regulators, and investors trust the organization and its management team. Trust builds loyalty and loyalty creates success.

Increased transparency about the “financial relevance of climate-related impacts and risks” is “a way to increase confidence and strengthen some kind of strategic focus,” Sullivan explained. This is a “stakeholder and practical discussion of how the organization understands, prioritizes, measures, and ultimately acts on and discloses information about climate-related risks and opportunities.” “It's an opportunity to communicate with others,” she added.

need to prepare as soon as possible

Even though these rules have been challenged in court, investors still want this information, Sullivan said. Preparing this data for reporting is a complex and time-consuming process that requires time, systems, processes, and internal resources, and waiting until legal issues are resolved leaves organizations stranded and must be completed quickly. Not only that, you may miss important information. Looking at this data gives you an opportunity.

“If you're really thinking about this strategically, you're thinking, 'How can we do this as quickly as possible to be the first to move and seize the opportunity?'” Sullivan emphasized. “Because there is little question that we are rapidly moving towards a decarbonized economy.”

think strategically

Therefore, think strategically in your preparations to uncover insights and data that can support your organization's strategic objectives and all its stakeholders – to seize opportunities rather than just comply. .

“It’s not just how the company operates, but how that actually integrates into the dependencies it has, whether it’s with its suppliers or the environmental conditions around the world in which it operates. Sullivan added. Each can reflect both risks and opportunities.

“Compliance will be a key element, but this is a huge opportunity to think about business and strategy in new and different ways,” Sullivan argued. “And really, that transformational mindset is absolutely critical.”