This spring, the SEC proposed a new rule that would require publicly traded companies to disclose detailed information on their climate-related risks, including their greenhouse gas (GHG) emissions. By requiring these disclosures, the SEC aims to elevate ESG data and provide investors with the comprehensive and comparable data they need to evaluate risk across their portfolios.
At Novata, this is exactly what we seek to do. Through our platform, we provide a cohesive tool for companies to report on key measures of their environmental, social, and governance (ESG) performance, and for investors to meaningfully compare reported data from portfolio companies to assess climate and financial risk. In particular, we provide guidance for data reporters on how to assess and disclose Scope 1, 2, and 3 Emissions, all of which underpin the SEC’s new rule and provide critical measures of climate impact that can prove challenging for reporters to collect. SEC Chair Gary Gensler noted that the proposed rule “would provide investors with consistent, comparable, and decision-useful information” and “help issuers more efficiently and effectively disclose these risks and meet investor demand.” In concert with these goals, Novata was pleased to submit a public comment in support of the SEC’s proposal.
Public support for climate disclosure has, broadly speaking, been strong. Recent survey research from JUST Capital, SSRS, Public Citizen, and Ceres found that 94% of Americans agree that companies should be transparent about their environmental impact and 86% support federal requirements for corporate disclosure of climate data, including strong majorities of both Democrats (97%) and Republicans (74%). In addition to strong public support for enhanced disclosure, many organizations in the ESG space, like Novata, wrote in support of the SEC’s proposed rule – including Ceres, MSCI, JUST Capital, Persefoni, and more – signaling that both the public and ESG changemakers are aligned with the SEC’s goals.
It is worth noting however, that there has also been pushback from some corporate and investment leaders, including CEOs of the Business Roundtable, who urged the SEC to revise its proposal, suggesting that the newly required disclosures (particularly around Scope 3 Emissions) would be too unwieldy for companies to collect and report and ultimately not decision-useful for investors. In the investment space, Blackrock and Nasdaq also pushed back, suggesting that the rule would increase compliance costs to investors and flood firms with data that might be difficult to compare.
There is no denying that the SEC’s proposed rule will present substantial challenges to the status quo – requiring companies and investors to adopt new practices, enhance data collection and reporting infrastructure, and integrate climate-related measures into risk assessments and decision making. As ESG disclosure shifts from a voluntary exercise to a mandatory disclosure, new players will need to engage. This includes a company’s CFO, audit committee, the board, and others, who will all need to come up the learning curve and closely review non-financial metrics. Climate-related financial disclosures are a new concept for many companies, but one that needs urgent adoption to help all stakeholders – including employees, communities, customers, and investors – understand the role that business plays in our planet’s warming. Climate-related disclosures will help companies identify and tap into opportunities to create long-term value.
Platforms like Novata’s provide the tools for corporate and investment leaders who are starting out on this journey, who may not yet have sustainability teams in place or climate reporting and risk assessment practices built into their operations. Our platform, like the SEC’s proposed climate rule, is built on existing standards from leading organizations in the ESG reporting ecosystem that many companies already use, including the GHG Protocol, the first and most widely recognized carbon accounting framework, in use since 1997.
As mandatory climate disclosure becomes increasingly prevalent around the world, it will not only be public companies asked to report emissions data, but the private companies that make up their value chains, as well. Novata’s platform allows data requesters the ability to customize the information their portfolio companies must submit, making it a viable tool for both public and private companies to build the institutional muscle of ESG data reporting. Novata encourages the companies we work with to adopt standardized ESG disclosure sooner rather than later – ensuring that companies subject to SEC disclosure are able to identify and manage climate financial risk, engage in target setting, and employ reduction strategies.
This in turn leads to stronger and more financially resilient businesses, and most importantly, helps to coalesce the data urgently needed to evaluate the environmental impacts of our planet’s largest companies. In a recent Barron’s article, Mindy Lubber, CEO of Ceres, impressed that “It isn’t any more about the future. It is about now. Climate risks are physical risks to start. They’re financial risks. They’re here, they’re costing billions of dollars.” In supporting the SEC’s proposed rule and through our ongoing efforts to support both corporate and investment leaders, Novata is working to ensure resiliency for the global economy – a goal that can only be reached by building a more sustainable future for our planet.