Get ready for SEC’s climate disclosure rule

Even without a nationwide regulatory framework on climate-related disclosures, companies in the U.S. have been decisively taking steps toward reporting on their sustainability initiatives to address new market demands and drive positive change in society. 90% of Russell 1000 companies published a sustainability report while about 50% were aligned with TCFD and GRI standards. Indeed, here at NTT DATA we have also partnered with many of our clients to help them future-proof their ESG data models for upcoming regulations and improve their sustainability performance. But without standardized mandatory disclosures, investors and consumers are left at a disadvantage. This is where the U.S. Securities and Exchange Commission (SEC) stepped in.

The SEC has an important role in ensuring fair and transparent disclosures by public companies that allow investors to understand their risks and opportunities. Acknowledging the growing influence of climate risk and sustainability in investors’ decision making, the SEC issued its landmark climate disclosure rule in March of 2024. This rule requires financial-grade climate-related disclosures within registrants’ Exchange Act annual reports, including greenhouse gas (GHG) emissions and climate-related governance, strategy, risk management, targets and goals and material expenditure and impacts. Of course, the focus of the SEC here is the financial materiality of climate change to registrant performance and related risk management, rather than the merits of net-zero. As a result, many climate-related indicators like Scope 3 and emissions intensity are excluded from this ruling, though it does encourage additional disclosures in these areas if companies consider them material.

At NTT DATA, we understand the challenges new sustainability regulations pose for our clients and that each organization is on a different maturity regarding their climate and sustainability data management. Our experts across the globe have been monitoring the ESG landscape closely as it unfolds, so we make sure our clients are prepared to meet emerging regulations and reporting standards, including CSRD, CCDAA, GRI, TCFD, CDP, ISSB, and so on. Much of this alphabet soup centers on a complex challenge: carbon accounting. This term describes quantifying the GHG emissions for which a reporting company is responsible: directly through its operations in Scope 1, indirectly through its consumption of purchased energy in Scope 2 and indirectly through other emissions attributable to its value chain in Scope 3. This post is focused on the challenges that companies will face in complying with the carbon accounting requirements of the SEC rule.

Why do most companies struggle to report their climate risk and sustainability data?

With the compliance clock ticking, we recommend companies get a head start on their climate risk and compliance reporting. Early starters can put robust systems and controls in place to reduce the risk of errors and noncompliance. As SEC mandates might come into force as soon as fiscal year 2026, companies face challenges in identifying, capturing and processing their data into a verifiable and auditable GHG inventory. This can be a time-consuming process demanding careful planning and execution to ensure proper data quality and coverage. Based on our experience, most companies are struggling here due to reasons like:

• Newly formed and often under-resourced, teams must quickly set up processes and governance to first collect activity data that is siloed across the organization. And Scope 3 data often cuts across organizational boundaries. Carbon accounting activity data can include operational asset-based combustion data, energy usage and geographical data, procurement and supplier-related data and more.
• Once activity data is collected, expertise is needed to calculate the reporting company’s emissions in alignment with the GHG Protocol. Often companies look to subject-matter experts with highly manual and error-prone processes and tools that don’t yield the desired results and end up creating a drag on resources. This approach can make third-party assurance of their GHG inventory particularly difficult as well.
• Finally, once this carbon accounting data has been captured and processed, teams often have little to no support to manage the GHG inventory effectively. Without visualization and workflow capabilities to provide strategic insights, it is difficult to tie the reporting company’s efforts to any changes in their overall sustainability performance.

Future-proof your ESG data model with NTT DATA

NTT DATA recognizes that you can’t manage what you can’t measure. We help organizations across industries future-proof their ESG data model for compliant reporting and beyond. Our global experience, local expertise and applied innovation provide an unparalleled advantage to our clients. We assess your current climate and sustainability competency to identify gaps and opportunities that help us design your future data model that will efficiently capture, store and process data for compliance and enhance your overall ESG performance management. We bring a range of proprietary digital assets to break down data silos and automate processes; deep industry knowledge and carbon accounting expertise to build accurate inventories and a strong ecosystem of partners to meet your corporate sustainability goals at speed and scale.

If you want to learn more about how we can help you, visit Sustainability Services.

Note: At the time of this publishing, the SEC has accepted a pause on rule implementation while it defends the rule from legal challenges. While it may be tempting to adopt a wait-and-see approach, companies that stand still may be putting themselves at a disadvantage. For many — particularly those doing business in California and/or the EU — standardized climate disclosures are not a matter of if but when. Those that start early can put in place robust emissions management and governance and see the greatest benefit to both compliance and sustainability performance.