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Businesses should prepare for climate risk reporting

California lawmakers have proposed legislation requiring climate risk reporting from businesses as the U.S. SEC also works on a final climate risk disclosure rule.

Microsoft and Salesforce are advocating for climate risk disclosure legislation to pass in California, which would provide standardized emissions reporting requirements for businesses.

California's SB 253, known as the Climate Corporate Data Accountability Act, would require companies doing business in California and earning more than $1 billion in annual revenue to report their greenhouse gas emissions, while SB 261 would implement climate-related financial risk reporting requirements.

Should the two pieces of legislation pass, SB 253 would affect more than 5,300 public and private companies, and SB 261 would apply to more than 10,000 businesses, according to nonprofit sustainability organization Ceres. The legislation builds off climate risk reporting rules in the European Union, as well as the U.S. Securities and Exchange Commission's (SEC's) work on a climate risk disclosure rule. Adobe, Atlassian, Patagonia and other organizations signed a letter of support this month for the Climate Corporate Data Accountability Act.

"SB 253 would level the playing field by ensuring that all major public and private companies disclose their full emissions inventory, creating a pathway for collective reduction strategies," the letter said. "This disclosure will help companies, investors, and the State better understand emission output, and strengthen the ability of economic actors to strategize in combatting costly risks associated with climate change."

Floods, wildfires, droughts and other extreme weather events affect businesses and their supply chains. In 2022, the National Oceanic and Atmospheric Administration estimated $165 billion in economic loss due to extreme weather events, said Steven Rothstein, managing director of Ceres' Accelerator for Sustainable Capital Markets.

"Climate is a financial risk for companies and investors," Rothstein said. "Investors, employees and the boards want to understand what that risk is. You can't manage any problem if you first can't measure a problem."

That's why Rothstein described the California bills as "national landmarks" that will allow investors, employees, suppliers and others to understand companies' climate risks and opportunities. However, California isn't the only entity looking to advance climate reporting rules.

While the EU plans to implement its new Corporate Sustainability Reporting Directive starting next year, the SEC is also working to finalize its proposed climate risk disclosure rule sometime this fall. That means businesses need to start preparing now for climate risk-related rules coming down the pike.

Businesses should assess, prepare climate risk data

Businesses have no choice but to "take this very seriously," Forrester Research senior analyst Alla Valente said of climate risk reporting rules. Entities including the SEC and EU are working to align climate reporting requirements to provide more standardized reporting on data and measurements for carbon emissions.

They're writing this rule because they want to hold companies responsible, so there are going to be consequences.
Alla ValenteSenior analyst, Forrester Research

Though the California bills have yet to pass and the SEC rule isn't finalized, businesses can assess whether the rules would apply to them or not using the proposals as a blueprint, she said. Looking at the proposed bills and SEC rule, Valente said businesses should be asking, "If this passes as is, what would I have to do at my organization to get ready?

"What data do I need to identify? Do I know where it currently resides, or do I need to figure out if I even have this type of information? And if I don't, how do I now start tracking this?" she said.

The SEC rule will require businesses to disclose accurate climate data. That could mean businesses need to walk back certain climate and sustainability claims if they can't back them up with data, which tackles the issue of company greenwashing, Valente said. Greenwashing is when companies make false or untrue claims about their environmental impact.

"They're writing this rule because they want to hold companies responsible, so there are going to be consequences," Valente said.

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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