The SEC Aligns with Other Climate Risk Regulations, with One Big Difference: Scenario Analysis
The recent SEC proposal is changing the landscape of climate risk disclosures required from companies and organizations.
by Megan Arnold
It’s exciting to see the U.S. starting to catch up with other countries on requirements for disclosing climate risk. In March 2022, the SEC released its initial proposal on climate disclosures for publicly listed companies, paving the way for meaningful action in the U.S. financial sector. Meanwhile, in the U.S. banking sector, the OCC and FDIC are preparing their climate proposals. Among U.S. agencies, the SEC is the furthest along in the rulemaking process, and it expects to require the mandatory reporting of climate risk as early as 2024.
Establishing climate disclosure requirements takes significant time and planning. Internationally, several regulatory initiatives or agencies, such as the EU Taxonomy, UK Financial Conduct Authority, and Japan Financial Services Authority, have set reporting timelines to start as early as 2022 accounting periods. The disclosure framework used is another key decision for regulators. Some agencies are following the EU Taxonomy approach and developing their own taxonomy, whereas TCFD is increasingly common among financial and securities regulators such those in the UK (FCA), Japan (JFSA), Canada (OSFI), Hong Kong (SFC), and New Zealand (FMA).
The SEC will be aligned with the TCFD framework; however, the key difference between the SEC and other sovereign agencies is that the SEC proposal does not require a scenario analysis. Instead, it offers issuers flexibility in choosing how they assess their physical and transition risks, while requiring that issuers disclose detailed information about the analytical tools, parameters, and assumptions they used for the assessment.
Such transparency will be critical in enabling disclosure audiences (e.g., investors) to review climate risks and compare companies. Third parties engaged in climate disclosures will need to provide issuers with thorough validation and documentation of all data and models used in the analysis.
As the largest global companies start their climate risk disclosures, they will be challenged with reporting in multiple jurisdictions. The use of TCFD will provide a common framework for reporting across regions, and tools like a global scenario analysis will be helpful for issuers to establish consistency in their assessment approach.
Jupiter offers scenario analyses, available globally, to assess physical risk across a breadth of climate perils and a range of time-horizons and emissions scenarios. Our data is extensively documented and our model documentation is near turn-key for the most rigorous regulatory evaluation. We provide granular metrics that can be used in both detailed and high-level analyses. We’re ready to help companies start their physical climate risk assessment, whether it’s for a jurisdiction this year, or the SEC in 2024 or later.
Megan Arnold is the Competitive & Regulatory Intelligence Manager at Jupiter Intelligence.
Jupiter Intelligence is the global leader in climate analytics for resilience and risk management. For further information, please contact us at firstname.lastname@example.org.