Draft rules from the SEC will require public firms to report carbon emissions and climate risks. Software vendors are gearing up to help you comply.

Thousands of public companies are already reporting carbon emissions and climate risks as part of their environmental, social and governance initiatives. But what was once voluntary may soon be mandatory. Is your organization ready to follow the leaders?

The mandate is coming from the U.S. Securities and Exchange Commission (SEC), which on March 21 issued draft regulations that will require public companies to report their carbon-emissions and climate-risks. The rules are not final, but the SEC already gathered industry feedback in 2021 before coming up with the draft rules. From here there will be a 60-day public review period. The SEC is expected to issue final rules by the end of 2022, with a three-year phase-in period that would start in 2023.

So are you ready to report, let alone plan and strategize around emissions and climate-risk data? If your company is among the more than 2,600 companies that has embraced the voluntary framework put forth by the Task Force on Climate-Related Financial Disclosure (TCFD), you are in luck. Based on last year’s industry feedback, the SEC has modeled its disclosure requirements in large part on the TCFD disclosure framework, as well as the also-popular Sustainability Accounting Standards Board (SASB) industry standards and materiality guidance.

As noted in the video report posted above, some aspects of the SEC’s draft rules are likely to face legal challenges, particularly Scope 3 (indirect) emissions reporting and guidance on what is material to a company’s financial performance. But Scope 1 and Scope 2 (direct) emissions and climate-risk disclosures are likely to be instituted as soon as next year. You can also expect global requirements, as the IFRS Foundation, which guides financial reporting in more than 140 countries, is expected to introduce its own draft emissions disclosure requirements this year.

Industry leaders, fast followers, and even cautious adopters are already reporting this data. In fact, 92% of Fortune 500 companies already disclose data tied to climate issue and publish environmental reports. The problem is that they do so using a variety of voluntary formats.

The good news in regulation is that it will provide uniform requirements that will simplify reporting for business. The mandate will also ensure complete and consistent measures that will help investors and the public spot greenwashing and selective disclosures.

Technology will be crucial to not just meeting reporting requirements, but to harnessing data for strategic and operational planning and business differentiation. The vendors that have been ahead of the curve with ESG-supporting software – companies including CervestEnviziHoneywell, Insight Software, PlanetlyWatershed, and Workiva – will retain first-mover advantages, as they know how to gather and report data based on the leading voluntary frameworks. They know where customers are likely to struggle when it comes to compiling data and, in some cases, moving the needle on ESG goals. They will be in a good position to guide companies preparing to meet the SEC’s coming reporting requirements.

In some ways, however, new requirements level the playing field for vendors and end-users that haven't spent years working on climate and social reporting. In recent weeks I’ve had briefings and updates with several vendors that are clearly gearing up to support ESG initiatives, including Anaplan, C3.ai, Onestream, Salesforce, and SAP.

The bottom line in the SEC’s draft regulations is that it’s time to prepare – if you haven’t already – for an era in which climate-impact and climate-risk reporting will be mandatory for public companies. From my perspective, it’s best to take a proactive approach and use technology to turn requirements to your own advantage.