In recent years, the global conversation around climate change has intensified, leading regulatory bodies to take significant steps to address environmental concerns. The U.S. Securities and Exchange Commission (SEC) recently announced a new climate disclosure rule, underscoring the importance of environmental transparency and accountability for companies across various industries. This will inevitably impact the manufacturing industry that either produces products or components for some of the world’s biggest brands. Therefore, sustainability is no longer something that is a “nice to have” or limited to major publicly-traded companies, but a business imperative.

New SEC Rule Highlights

At a high level, the climate disclosure rule mandates that publicly-traded companies disclose their greenhouse-gas emissions, climate-related risks, and strategies for mitigating these risks. Specific requirements include disclosure of:

• Climate-related risks, and related risk management and oversight. 

• Material Scope 1 and Scope 2 emissions (for certain filers only), while notably not requiring disclosure of Scope 3 emissions from a filer’s supply chain.

• Statement describing financial impact of severe weather events, if the aggregate amount equals or exceeds a 1% threshold against gross profits or expenditures.

• Statement describing whether carbon offsets and renewable energy credits or certificates (RECs) have been used as a material component of the company’s plans to achieve its climate-related goals.

• Carbon-reduction goals. 

This move reflects a broader shift toward greater transparency in corporate reporting, as investors increasingly prioritize environmental, social, and governance (ESG) factors in their decision-making processes, including supply chain management practices. Though this ruling may not require your company to comply, it may require adapting quickly in order to maintain business agreements and contracts with those who are.

Operator Impact

It’s worth acknowledging that the SEC climate disclosure will not directly apply to all companies. First, the rule’s applicability is limited to companies with publicly-traded securities. Second, the type of emissions that are generated within a publicly-traded company’s supply chain (Scope 3), which could potentially impact organizations that are not publicly-traded, are not required to be disclosed under today’s rule. 

That said, we anticipate the impact of this rule to include an overall commitment to improving data collection and increased focus on all sources of a company’s emissions, even those within the supply chain. In essence, it is best to get started down this path rather than waiting for stricter regulations impacting supply chains to be promulgated and enforced.

Challenges:

• Data Collection and Reporting. Companies must enhance their data collection mechanisms to accurately measure and report their greenhouse-gas emissions. This may require investments in sophisticated monitoring technologies and robust reporting frameworks.

• Supply-Chain Transparency. As part of future disclosure requirements, companies may need to provide detailed insights into their supply chain operations. 

• Regulatory Compliance. Compliance with the SEC’s climate disclosure rule necessitates a thorough understanding of evolving regulatory frameworks and reporting standards.

Companies must stay abreast of updates and ensure adherence to compliance requirements.

Opportunities:

• Enhanced Stakeholder Engagement. Transparent reporting on climate-related risks and mitigation strategies fosters trust and credibility among investors, customers, and other stakeholders. 

• Innovation and Efficiency. The emphasis on climate disclosure incentivizes companies to innovate and implement sustainable practices throughout their operations. From adopting energy-efficient techniques to optimizing delivery routes, significant potential for robust efficiency gains and cost savings exists.

• Market Leadership. Companies that proactively address climate risks and demonstrate a commitment to sustainability are poised to emerge as industry leaders. By aligning business strategies with environmental objectives, these companies can attract socially responsible investors and gain a competitive edge.

By preparing for the U.S. SEC disclosures, companies can also make progress toward other pending regulations. Following the steps below will help position metalcasters for compliance and evolving with the ever-changing reporting landscape. 

Disclosure without action should signify commitments. It’s only a matter of time, however, before external stakeholders will require performance updates on how risks are being managed and action is being taken to reduce negative impacts. For the manufacturing industry, some starting points may be related to health, safety, energy consumption, waste and recycling, water, discharge, and air quality, many of which are already heavily regulated. Sustainability then becomes a measure of progress and a narrative of what is being done to build a more resilient company in the process.

Here’s how to prepare.

• Conduct a Climate-Risk Assessment: Companies should assess their exposure to climate-related risks, including physical and transition/liability risks. Applying Taskforce on Climate-Related Financial Disclosure (TCFD), and now International Financial Reporting Standards (IFRS) to enterprise-level risk assessment processes, can help identify areas of vulnerability, inform disclosure and shape strategic objectives.  

• Develop and Maintain a Greenhouse Gas (GHG) Inventory Management Plan (IMP): Develop procedures for managing climate-related detail and public disclosure, outline calculation methodologies, assumptions, and data sources. Ensure alignment to recognized standards and frameworks, such as the Greenhouse Gas Protocol, Global Reporting Initiative (GRI) and IFRS. 

• Conduct a Climate Scenario Analysis: This will help assess the potential impacts of different climate pathways on business operations, financial performance, and strategic priorities. Use insights to inform disclosure and strategic growth plans. Experts such as APPI can help you evaluate different temperature pathways and even integrate the outcomes into your TCFD report.

Managing Oversight and Communications:

• Establish governance structures. Implement robust governance structures to oversee climate-related disclosures, including clear roles and responsibilities, accountability mechanisms and board oversight.  

• Engage stakeholders. Engage with stakeholders, including investors, regulators, customers, and employees, to understand their expectations regarding climate-related disclosures. 

• Collaborate with external experts Outreach efforts should include external experts, including consultants, auditors, and industry associations, to access specialized knowledge and guidance on climate-related disclosures. 

While compliance may pose challenges initially, it also presents an opportunity for companies to drive innovation, strengthen stakeholder relationships, and position themselves as sustainability leaders.