In Short
The Situation: The
The Result: Companies' sustainability reports, and the goals and discussion provided therein, will likely be subject to greater scrutiny, and might result in increased reporting burdens in subsequent
Looking Ahead: Management should be communicating with its board, and boards should be actively engaged in oversight of management regarding ESG disclosure risks and appropriate disclosure controls and procedures relating to publicly available ESG information.
For many companies, summer is the time when they prepare and publish Sustainability Reports, which report on efforts with respect to environmental, social, and governance initiatives. Other companies may have already reported, but are refreshing materiality analyses or otherwise starting a process to prepare for 2023, particularly in light of proposed
In our prior Alert, we discussed the charges the
Potential Increase in "Greenwashing" Litigation
The
A prior Alert also discussed the
To take just a few examples, under the Proposal, if a company sets a climate-related target, it must explain the activities included within the target, the units of measurement to be used, the baseline against which the target will be measured, the defined time horizon by which the target will be met and how, and any interim targets. If a company sets a Scope 3 emissions target in particular, it must additionally disclose its Scope 3 emissions in a prescribed manner-a potentially burdensome process that requires discerning the company's "value chain," and collecting Scope 1 and/or Scope 2 emissions data from each link in that chain. Lastly, if a company uses scenario analyses to assess climate risk, the company must disclose potentially sensitive business information such as a description of the tool itself, and the parameters, assumptions and analytical choices made in utilizing the tool.
Although the Proposal is not yet a final rule, and it is not a certainty that its provisions will come into effect, the possible ramifications should not be ignored. As we describe in greater detail in a comment letter submitted to the
Three Key Takeaways
- Management should update the board regularly regarding efforts to evaluate and develop appropriate disclosure controls and procedures relating to publicly available ESG information in light of increasing focus by
SEC and plaintiffs. - The board should be engaged in active oversight of management related to the risks involved in ESG disclosure and related risk mitigation strategies, and should document a record of the oversight process.
- The board and management should evaluate sustainability reports and disclosures through the lens of potential
SEC rulemaking and any ongoing ESG materiality assessments that may be underway
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
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