In March of last year, the U.S. Securities and Exchange Commission (SEC) proposed a new rule that would govern how U.S. companies publicly disclose information related to climate change and sustainability. Release of the final climate disclosure rule has been delayed, due to an unprecedented number of public comments, and it's now expected to be published in April.
The new rule will mean massive changes for U.S. companies. However, recent polling from Workiva and PwC shows that many large companies are not waiting for the SEC’s final rule to make progress on their climate-related disclosures: 70 percent of business leaders have already started to gather and disclose data in alignment with what's expected from the SEC and plan to proceed with such efforts regardless of when the new rule is issued. However, 85 percent of business leaders surveyed reported that they do not have the technology they need in order to meet new expected reporting requirements.
Almost all of the 300 corporate executives surveyed said their company is prioritizing environmental, social and governance (ESG) considerations more now than they were before the SEC rule proposal. But 39 percent feel their company is not currently prepared to comply with new requirements. Further, at least 70 percent believe they will need two years or more to become compliant with the new measures.
“Regardless of when the SEC rules are finalized, investors and stakeholders have made clear: this is important," Kevin O’Connell, trust solutions ESG leader at PwC, said in a statement. "Companies should be preparing by transitioning to investor-grade and tech-enabled reporting to help accelerate their reporting process and looking to implement effective governance and internal controls.” Forty percent of corporate respondents said they have already made investments in new reporting technology, and a third have invested in new hires to oversee ESG reporting.
Aside from technology, staffing and human resource concerns related to ESG are also weighing on the minds of corporate leaders. More than a third of responding business leaders are not fully confident that their company is adequately staffed to meet the requirements of the SEC rules.
While leaders from larger companies are more confident they have the right technology to meet new ESG requirements compared to those from smaller companies, the converse is true for staffing. Larger companies are less confident they have adequate staffing in place to comply with the new rule. “Having the right technology, people, and timelines will be critical to complying with the proposed rule changes and other stakeholder demands for ESG transparency,” Julie Iskow, president and chief operating officer at Workiva, said in a statement. The current labor shortage could complicate efforts further, Workiva and PwC found.
External assurance for ESG reporting is also growing in importance, as 70 percent of respondents said they already seek independent assurance for their reports and 96 percent said they will seek external assurance in the future, whether or not it is required in the final SEC climate disclosure rule.
Of course, staffing, technology and external assurance carries a hefty price tag. The SEC estimates that compliance with the new climate disclosure rule would cost a business $640,000 in year one. But 61 percent of business leaders believe their price tag for compliance will exceed $750,000, and 27 percent predict they will spend more than $1 million, according to the Workiva-PwC survey.
While almost 9 in 10 business executives indicated their companies already report some ESG data, companies still have much to do to prepare for the new SEC climate disclosure rule. Companies should ensure their technology, staffing, and external assurance plans are in place now to create a smoother transition into SEC compliance.
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Mary Riddle is a writer and sustainability consultant based in Florence, Italy. As a former farmer and farm educator, she is passionate about regenerative agriculture and sustainable food systems. Currently, she and her husband also own and operate Italy in Season, a subscription box company with a mission to support small-scale Italian artisans and traditional craftsmanship.