Rationalizing the SEC’s Enhanced Climate and ESG Disclosures

Current climate-related disclosures are inadequate and incomplete, not reflecting the future pricing of risks in securities, increasing the exposure to the ‘reasonable’ investor. The U.S. Securities and Exchange Commission (SEC) rulings will require climate-related risks to connect to specific channels of financial impacts such as revenues, assets, and liabilities, differentiated costs, and cost of capital (using enterprise valuation models). These disclosures will provide contextually relevant historical trends, prevailing risks in the reporting year, and future risks for medium and long-term pricing following the recommendations of TCFD.

The SEC also wishes to regulate the labeling of ‘ESG-integrated, ESG-focused, and Impact funds’ that market their ‘green and/or sustainability’ credentials to enhance data comparability and help investors differentiate between investment strategies. The ESG disclosure rules mandate that advisers, fund managers, and business development companies of such funds use evidence-based data on ESG policies, strategies, and integration to disclose the funds’ ESG performance vis-à-vis committed impacts and present them along with forward-looking plans.

We are covering both rulings to provide a combined understanding of the regulatory changes in the ESG/climate disclosure space from a US perspective while being mindful of the more stringent requirements in the European landscape.

In this whitepaper, we will speak to prevailing frameworks, standards, and regulations focused on climate, ESG, and sustainability and outline the potential benefits of rapid convergence. In addition, we will outline how these protocols provide requisite data and enable ecosystems to meet the SEC’s disclosure requirements while aligning with stakeholder expectations.

Our ESG Advisory Services team—composed of designers, scientists, economists, planners, engineers, and data scientists—frequently interact with finance, investment, and sustainability teams at banks and PE on feasibility studies, due diligence audits, sustainability disclosures, and ESG/climate programs. This whitepaper draws on the collective reflections of our work through internal discussions, client interactions, and engagements with institutional investors.

As a publicly listed company, for the fourth year, Stantec continues to be on the Corporate Knight’s Global 100 most sustainable corporations. In 2022, we were #7 in the world, #1 in our industry, 1% of top performers. We are driving ESG/climate action internally and through our integrated advisory services.