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SEC Climate Disclosure Regulations and Sustainability

Chief Accounting Officers Prepare for Proposed SEC ESG Reporting Rules; Scope 3 Disclosure Challenges Loom

March 24, 2023 by Joe Panettieri

Financial executives and their teams -- facing potential ESG (Environment, Social, and Governance) reporting requirements from the SEC-- are "laser-focused" on building an ESG reporting ecosystem, but challenges in such areas as Score 3 disclosures loom large, according to research findings from Persefoni and the FERF (Financial Education & Research Foundation).

More than 50 chief accounting officers and controllers from some of the largest US companies participated in the survey, the report authors said.

ESG Reporting: How Financial Executives Are Preparing

The proposed SEC regulation for ESG reporting -- involving fiscal year 2023 reporting and fiscal year 2024 filing -- is still under review as of March 2023. But financial executives, accountants and their team members are not waiting around for clearer guidance. Proof points from the research include:

  • ESG reporting ecosystem: Finance is working to control ESG (100%), developing oversight of ESG reporting (97%), and increasing its role in preparing disclosures related to the SEC’s proposal (93%).
  • Process: Eight out of ten finance professionals reported being most keenly focused on building the complex processes needed to address organizational ESG reporting.
  • Climate Data Confusion & Scope 3 Concerns: Respondents named difficulties in obtaining scope 3 data (77%) and the general complexity of the climate data (58%) as the most significant challenges to meeting the SEC’s climate proposal.

Meanwhile, only 11% of S&P 500 companies listed among signatories of the Taskforce on Climate-related Financial Disclosures (TCFD), as of December 2022, the report stated.

Similar Scope 3 concerns surfaced in a research report from Tata Consultancy Services and Microsoft.

SEC Proposal for ESG Reporting: Good News for Business, Technology Partners?

The silver lining from all those research efforts? Those data points could be good news for business management consultants, IT consultants and service providers that specialize in sustainability solutions. Among the areas partners should focus: Fully 58% of those surveyed expressing concern regarding the complexity (and accuracy) of their climate data, according to the report.

Those findings help to explain why annual spending on ESG reporting software is expected to reach $1.5 billion by 2027, up from $700 million in 2022, according to research from MarketsAndMarkets. That's a compound annual growth rate (CAGR) of 15.9%.

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