Three-Steps to Improving Your Climate Disclosures

With the SEC likely to adopt new climate disclosure rules within the next six months – and continued interest among investors in the topic – many companies are looking to improve their climate disclosures for the next proxy season. But what is the most effective way to go about that?

Consider this three-step process to help you get the most out of your disclosures:

Step 1 – Read what other companies are disclosing about climate: This is a natural first step to help spark ideas. It also helps as sort of a market check to ensure that your company has not fallen behind in terms of what is expected to be disclosed.

You will want to read climate disclosures both pulled from SEC filings and from outside that filing stream, looking at sustainability and ESG reports that are posted on corporate websites.

Which companies to review? Obviously, you will want to look at the disclosures for companies within your industry. But it’s also useful to go beyond your industry and see what disclosure leaders are doing. There might be nuggets there that will allow your company to shine within your industry if you decide to replicate them.

When reviewing these disclosures, you will want to be organized and catalogue what you see. This can be done in a variety of ways, from filling in a large spreadsheet to ordering types of disclosure in a laundry list. Experiment and see what works best for you.

Step 2 – Research what your major shareholders (and ESG rating agencies) are looking for in your climate disclosures: Your research into what your major shareholders (and ESG rating agencies) want should fall into three buckets. First, you should review the data about how – and where – they’ve pressured other companies about their disclosure.

Related to that is the second avenue, review the data about how major shareholders voted on environment-related shareholder proposals. Third, ask shareholders directly during engagement about ways in which they wish your company would improve its climate disclosure.

This is where we come in. We have the data you need to quickly conduct research to satisfy the first two buckets – and to help you get the most out of your shareholder engagement on this topic.  You can leverage our team of experienced advisors along with our ZMH proprietary ESG database that includes ESG priorities for all the major investors out there.

Step 3 – Ensure that your climate disclosures are not misleading and that they are auditable: Potential liability is a real concern when it comes to climate disclosures, particularly when it comes to the extensive new SEC regulations that are on the verge of being adopted. There is not a lot of legal certainty backing up nascent disclosure standards – and there is a lot of data being pulled together for the first time that might not be as robust as traditional financial data. Reliance on third-party information is also a big liability risk.

Creating a set of sound disclosure and internal controls in this area is important so that any climate disclosures that are made public are not potentially misleading. An important part of these controls is the internal documentation of what information is being relied upon, where – and how – it was derived, and who vouches for its accuracy. For example, is it by the appropriate personnel within the company? And is that personnel willing to sign sub-certifications to support its accuracy?

How ZMH can help: We can help you to tackle this three-step process. ZMH offers a low cost, turn-key solution with an approach that focuses on:

  1. Mapping your company’s current ESG profile against the SEC’s baseline disclosure requirements to identify any potential gaps (our “Baseline Assessment”);
  2. Identifying what should be your company’s appropriate internal resources and expertise with the goal of addressing any gaps that are identified;
  3. Helping to develop your TCFD, Scope 1 and 2 and other disclosures to assist in meeting the SEC’s minimum expected disclosure requirement.

ZMH allows you to maximize the ROI on your ESG investment in resources, initiatives and disclosures. We help to:

  • Provide data on investor priorities;
  • Engage with investors on ESG topics;
  • Perform materiality assessments;
  • Assist the drafting process for TCFD and other framework reporting;
  • Calculate Scope 1 and 2 emission footprints; and
  • Formulate carbon reduction strategy and relevant climate policies.

Posted Date: 10-6-22