In late March, the U.S. Securities and Exchange Commission released a sweeping proposal that would require publicly traded companies to disclose climate change risks that could affect their business, as well as their direct and indirect greenhouse gas emissions. Greenhouse.
While the rules are likely to be challenged by national business advocacy groups who have accused the SEC of overstepping its authority, energy industry analysts say the rule change comes as a growing number of companies public and private disclose the effect of their companies on the environment.
Mike Troupos, vice president of forward management.
As this information is increasingly included in environmental, social and governance (ESG) reports, companies are facing growing pressure from investors to learn more about environmental exposure and how companies are tackling the climate crisis.
Several publicly traded companies, including a Jackson-based utility Energy consumerscar manufacturer based in Zeeland Gentex Corp.and specialty and vintage car insurer based in Traverse City Hagerty inc. – either declined to comment on the proposed rules or said they were under review.
“We are pursuing an industry-leading clean energy plan that includes affordable, clean energy solutions for all of our customers,” consumer spokesman Brian Wheeler said in a mailed statement. electronic. “In many cases, we are already collecting and reporting data that would be disclosed if the new rules were finalized later this year. We continue to evaluate this proposal to ensure that we and other energy providers are focused on providing material risk disclosures and to ensure that our reporting process for newly required disclosures meets the required standards. for SEC reports.
In particular, the proposed rules would require publicly listed companies to disclose direct and indirect emissions – known as “Scope 3” – emissions from their operations as well as their supply chain. The SEC earlier this month extended a public comment period on the new rules.
Meanwhile, MiBiz recently spoke with Mike Troupos, vice president of the Grand Rapids-based energy consulting firm Forward-looking managementon what the rules could mean for businesses as well as on continued progress in corporate climate reporting.
Why are these proposed rules so important?
This is going to be quite significant in that many public organizations have considered reporting their carbon emissions, but what we’re seeing is that a majority of companies that do are larger. The majority of small businesses did not report. It’s a big deal whether it’s a compliance issue – if you want to be a public company you have to report your scope 1, 2 and 3 emissions. Most companies are well versed in scope 1 or 2, your direct emissions, however, scope 3 is your supply chain. GM is probably the simplest, most relevant to us in Michigan. This is a company that really tries to protect itself from scope 3 emissions.
To whom would these rules apply?
This is only for publicly traded companies, but we find that many private equity firms – which can buy companies, spin them up or push them to go public – want the option. For private equity firms, it’s not just the SEC’s rule on carbon emissions, it’s ESG: “If we need to know what kind of ESG risk we’re taking on, we think we can get more money when we sell them.”
How much of this disclosure is happening now?
I don’t know, because it’s not mandatory. There are two ways for companies to report this: either through a sustainability or ESG report in which they openly disclose their emissions, or through a public channel.
What is the place of foresight in all of this? Do you advise businesses on how to prepare for these rules?
Yes. We are an outsourced energy manager and help our clients through the process with a strategy, determining what our goals will be and collecting all the data needed to report emissions. To do scope 1 and 2 emissions, you need to collect energy consumption in buildings and data on the consumption of diesel fuel, gasoline, propane and other fuels. We also help our clients reduce their carbon emissions and identify ways to be more efficient and use less energy in their buildings. We work with many public companies, most of our clients have a market capitalization of $20 billion and below.
What is the best way for companies to manage these indirect Scope 3 emissions that are outside of their direct operations?
Many companies, especially those that produce Scope 1 and 2 shows, are just starting to ask about this. There are several things you can do. There are 15 categories of scope 3 emissions, including your employees commuting to work and business travel. For most of our industrial customers, the principal is the purchase of goods and services. First, we will determine which of all the Scope 3 categories you are broadcasting in. If there are purchased goods and services in your supply chain, we work with them to produce a low-carbon product. Could we host more Zoom meetings to reduce air travel? Things like that.
Groups openly critical of the proposal have pledged to fight it, but are you already seeing an increase in the number of public companies voluntarily disclosing these emissions and climate risks?
Absolutely. Companies with a market capitalization of $10 billion and below over the past year have really exploded. Many companies are realizing that if we want to tap into the financial markets and achieve superior valuations for our business, it’s something we need to invest in. From a business perspective, that’s not a lot of investment. Another big thing is the “big quit” – if we have a company that listens to employees saying it’s important, it’s a great way to attract and retain talent. Many companies see this beyond myopic rules. They want to retain young talent and ensure they are sustainable, saying, “This is a chance to grow our business at a time when other businesses are shrinking.” Others say, “Yeah, it’s coming, we’re going to get ahead, and we know it’s best for us anyway.”