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ESG is noise: A CFO's Candid Directive




The SEC Climate Proposal, which was first introduced in January 2020, is expected to be finalized later this year. The proposal requires public companies to disclose information about their ESG risks in their regulatory filings, including annual and quarterly reports. While the proposal is still undergoing a public comment period, it’s important for companies to start preparing now in order to ensure they are ready when the new rule goes into effect. In this blog post, we’ll discuss why CFOs need to start preparing for the SEC Climate Proposal and what steps they should take now.

 

Risk Management

CFOs should start preparing for the proposed rule now because it will require them to assess and manage their company’s ESG risks more effectively. Once the rule is in place, companies will be required to provide detailed information about their ESG risks in their regulatory filings. This means that CFOs must have a good understanding of how these risks may impact their business and how best to mitigate them. The sooner CFOs start assessing these risks and developing strategies for managing them, the easier it will be for them to comply with the new rule once it is finalized.

Accurate Regulatory Filings

In addition to risk management, CFOs need to ensure that they are providing accurate information in their regulatory filings. This includes both financial statements and non-financial disclosures related to ESG issues, such as climate change or human rights abuses. Companies must ensure that all of this information is properly sourced and up-to-date before submitting it as part of their regulatory filings. If not, they could face penalties or other sanctions from the SEC if they fail to meet its standards. In addition, companies may also get significant bad exposure, which would provide damaging effects to their brand.


Competitive Advantage

Finally, CFOs should keep in mind that compliance with the proposed rule can also give them a competitive advantage over other companies who have yet to prepare for it adequately. By providing comprehensive disclosure of their company’s ESG risks and impacts on a regular basis, companies can demonstrate their commitment to sustainability and build trust with investors who are increasingly focused on environmental responsibility when considering where to allocate capital. This can be especially beneficial if competitors lack similar disclosures or fail to comply with regulations when filing reports with the SEC.

 

The SEC Climate Proposal represents an important step forward for corporate governance by requiring public companies to disclose more detailed information about their ESG risks in regulatory filings. As such, it’s essential that CFOs begin preparing now so that they are ready when the new rule goes into effect later this year. An effective preparation strategy should include assessing existing risks, ensuring accurate financial reporting, and taking advantage of any potential competitive advantages offered by early compliance with the new regulation. By getting started now, CFOs can help ensure that their companies are well positioned when the final version of the proposal is released later this year. CFOs need to have a holistic data strategy to support this preparation (just like their financial record keeping).


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