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Climate-Related Disclosures Aren't Limited to the New SEC Rules

Despite the exclusion of Scope 3 from the SEC final rules, companies cannot afford to stop developing their data handling capabilities.

Guest Post by Lisa Shanahan Stanley, CEO of OSCRE International

On March 6, the Federal Securities and Exchange Commission (SEC) adopted final climate disclosure rules for public companies. The rules came in response to demands from investors for more transparency about the risks that climate change poses to these organizations and what they’re doing to address them. While many companies are already disclosing these details, investors also wanted this information communicated in a form that is, as the SEC put it, “consistent, comparable and reliable – and therefore decision-useful.”

Why should real estate stakeholders care about the SEC final rules? Because they require companies to track and report greenhouse gas (GHG) emissions, and the built environment accounts for 40% of those emissions, according to The Climate Group.

 What do the SEC final rules say about GHG emissions?

Under the SEC rules, larger companies must include Scope 1 and Scope 2 GHG emissions data in their annual report starting with fiscal year 2026.

When the rules were first proposed two years ago, they included a third category: emissions created by sources not controlled or owned by the business, such as from their supply chain or the use and disposal of their products. Relevant to corporate real estate leaders, Scope 3 can include electricity consumption in leased assets or the embodied carbon in construction materials. Many businesses and trade groups opposed the inclusion of these “Scope 3” emissions on the grounds that it would be too difficult and expensive to track them. In fact, it was reported by the SEC that more than 20,000 comments were received during the public comment period – with many attributed to challenges associated with Scope 3 data. In the end, the SEC excluded Scope 3 from the final rules, but for those opponents, the victory may turn out to be hollow.

The proliferation of sustainability-related laws

Businesses both public and private are increasingly being subjected to state and local reporting and building performance laws, some of which still require reporting of Scope 3 emissions. The most notable of these are California’s Climate Corporate Data Accountability Act and Climate-Related Financial Risk Act, which apply to any organization doing business in the state, regardless of whether that business is large or small, public or private.

The California rules come in the wake of local building performance laws being enacted in places like New York, Boston and Washington, DC. Outside the U.S., legislators in the European Union passed the Corporate Sustainability Due Diligence Directive (CSDDD) on March 15, while countries including Australia and the United Kingdom are incorporating a disclosure framework developed by the International Sustainability Standard Board (ISSB) into their corporate reporting.

A minefield of regulations

Complying with these laws might not be so onerous if they shared the same provisions, compliance thresholds and reporting processes. That would enable companies to devise a single data management and reporting protocol to satisfy them all. Unfortunately, that’s not the case. In fact, one of the few things these regulations have in common is the flood of litigation they’ve provoked. The SEC final rules, for example, have already been put on hold by the US Court of Appeals for the Fifth Circuit pending the outcome of a barrage of lawsuits.

These suits add further uncertainty to an already complex regulatory landscape. After all, we know what these regulations look like now, but how will they change as a result of litigation, and what provisions might be allowed to take effect as challenges work their way through the courts?

Robust data is the key

The upshot to this for real estate stakeholders is that, despite the exclusion of Scope 3 from the SEC final rules, companies cannot afford to stop developing their data handling capabilities. Even for organizations that aren’t subject to Scope 3 reporting requirements in other jurisdictions – and millions of businesses are – the complexity and ever-changing nature of the regulatory landscape, as well as the uncertainty surrounding these laws, mean that businesses must establish agile, scalable data management protocols that allow for the exchange of data across disparate platforms internally and with external business partners. The only way to achieve this reliably and cost effectively is with a standards-based approach.

Real estate companies that have been watching the development of these regulations and others recognize the need for data standards. More than 50 of them participated in OSCRE’s Energy Data Standards Project last year, including representatives from CoreNet Global. Organizations from across the industry contributed perspectives from facilities managers, corporate real estate executives, software developers, service providers and investors, collaborating to develop energy data standards that can enable data exchange to address the collection, management and reporting of energy data.

The OSCRE energy data standards include:

Five Energy Use Cases - one data model standard and 4 data exchange standards:

  1. Energy Data Set – a Data Model
  2. Direct Commission Policy
  3. Collect Data from Functional Data Owners
  4. Data Reporting Requirements of Supply Chain
  5. Collecting Data for the Supply Chain

The standards also provide implementation tools that can help users address compliance reporting, benchmarking, and an API specification to facilitate data exchange.

These standards have been integrated into the OSCRE Industry Data Model™ (IDM), a free and open access resource that contains data definitions for over 150 use cases, as well as standards developed by BOMA and other standards organizations. For real estate businesses preparing to comply with the SEC final rules and other sustainability-related regulations, the IDM is an invaluable tool.

The expanding reporting requirements for GHG emissions at the municipal and state levels in addition to the SEC reporting requirements create an environment of uncertainty, with associated potential for financial penalties and corporate reputational risk. The path forward requires more effective data management to address these challenges and develop a robust data collection and management protocol based on standards.

Lisa Shanahan Stanley is CEO of OSCRE International, a corporate member-based non-profit organization focused on development and implementation of real estate data standards and effective data governance practice for the entire asset lifecycle.

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