How regulators are tightening the screws on sustainability reporting
From our “Sustainability” Thought Leader Partner, JLL.
It’s no longer enough for companies to have good intentions around sustainability.
Shareholders of public companies are increasingly asking for more information about the risks that climate change could pose to their investments.
A new rule proposed by The Securities and Exchange Commission (SEC) is set to create across-the-board standards. It’s one of the latest policy initiatives worldwide to address the issue.
If finalized, the proposal would require public companies to disclose their annual greenhouse gas (GHG) emissions and the climate risk their businesses face, including how Scope 1, 2, and 3 emissions impact their business operations and financial results. Given that real estate accounts for around 40% of carbon emissions, implementing measures to decarbonize both new and existing buildings has now become a priority.
“Shareholders are becoming activists in this sector, and they are putting demand pressure on companies,” says JLL’s Global Chief Sustainability Officer Richard Batten. “But it’s not just investors. Our clients are also calling for action.”
As expectations around corporate action on sustainability continue to grow, investors, customers, and employees are increasingly looking for companies to show comprehensive plans on how they’ll achieve their commitments.
It can be a major sticking point. While some companies are leading bullish efforts, such as information technology leader HP’s commitment to eliminating 75% of its single-use plastic packaging, many are still trying to set benchmarks and create defined goals.
The key to implementing the SEC’s proposed guidelines is understanding emissions data, says Jennifer Fortenberry, Global Product Manager, Energy, and Sustainability at JLL.
“Getting that data normalized will help companies pinpoint areas to dive deeper to make meaningful change,” she says.
Monitoring and analyzing this data helps identify opportunities and implement continuous improvements to energy efficiency. Tools such as JLL’s Canopy centralize utility and environmental data and support the type of reporting requirements the SEC is asking for.
“You can’t manage what you can’t measure. If you don’t have all this information in one place, then you really can’t prioritize efforts to make improvements,” Fortenberry says. “Reporting and compliance is the bare minimum now.”
One stumbling block so far has been a wide variety in sustainability reporting frameworks – if companies have published that information at all.
“For long-term, meaningful action to occur, there needs to be consistency in reporting and data,” says JLL Sustainability Vice President Cynthia Curtis. “Then, it elevates it more closely to the financial reporting and puts the topic smack in the middle of boardrooms and finance departments. And that’s an excellent thing.”
The proposed disclosures are like those that many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.
While about a third of public companies already include some information regarding climate-related risk in their annual reports, others state disclosing the data would be cumbersome and costly.
“People are recognizing that you can’t do it by yourself, and you’ve got to collaborate with a broad range of partners,” Curtis says. “Business leaders are looking for partners, they are looking for help, and they’re looking for partners to help them develop those plans and understand what the steps are they should be taking in their space.”