Earlier this year, the U.S. Securities and Exchange Commission (SEC) proposed a new set of reporting rules that would require American businesses to improve and increase their reporting on carbon emissions and sustainability.
ASUG sat down with Japen Hollist, Head of Sustainability Go-to-Market in North America for SAP, to discuss what these proposals mean for American companies and SAP customers.
This is an edited version of our conversation.
Q: What are the short-term and long-term effects of this decision?
A: The decision from the U.S. Securities and Exchange Commission (SEC) in March of 2022 was to propose new rules that would require public companies to include Scope 1, Scope 2, and where material, Scope 3, emissions information in their 10K reports. The short-term effects of this decision are causing public companies and some state attorneys general to question the SEC’s authority to make such rules, but also to seek to understand what public companies will need to change in order to comply with these proposed rules, should they become accepted.
The long-term effects of this decision are what we might call the “SOX-ification” of ESG, where companies will now treat non-financial ESG data like they treat financial data. Process controls will need to be put into place to ensure data integrity, data linearity, data assurance, and audit-ability. All to ensure that a CFO can attest to the truthfulness and accuracy of the emissions data that is being submitted in the 10K.
Q: Why is this announcement important for all American companies, not just SAP customers?
A: It has broad implications. This announcement impacts all companies that are listed on a stock exchange governed by the regulations of the U.S. Securities and Exchange Commission. It will require them to track and report emissions data in a far more rigorous and formal manner than what is typically being done at this point in time.
Q: How will these disclosures affect climate change?
A: If you believe that what gets measured gets managed, then we would expect that these newly proposed rules will positively affect climate change. As emissions data moves from unaudited, separate public relations centric reporting to audited and controlled reporting in the rigorous 10K filing process; we will see companies strongly focus their effort to reduce emissions.
As investors, employees, customers, and other corporate stakeholders track emissions produced by public companies, they will naturally compare emissions numbers between these companies, ultimately impacting investment decisions. This will influence stock price and consumer demand, leading to revenue implications. These regulations ultimately increase transparency and that in turn increases accountability.
Q: Does this mean there will be more regulations in the United States moving forward?
A: Certainly, this seems to be the global trend; more climate-related regulation, not less. In fact, just recently, the U.S. Treasury’s Office of the Comptroller of the Currency (OCC) indicated that it will begin to regulate banks under its jurisdiction in the areas of diversity and climate risk.
Q: How is SAP viewing this decision? What does this mean for the solutions you all produce, including SAP Cloud for Sustainable Enterprises?
A: It is not my place to speak for the company on what regulations SAP does or does not favor. However, regulations are often a reflection of what a society sees as important.
These regulations will impact our clients and it is SAP’s responsibility to help our clients comply with these regulations to better serve society and their stakeholders that demand it. We see the products within SAP Cloud for Sustainable Enterprise as powerful tools to help our clients address these regulations and help them make their companies more sustainable.
Q: I’m curious as to why this is coming from the SEC of all entities. Any insight you can provide on that?
A: The SEC is chartered to protect investors, and three of its four commissioners believe that carbon emissions need to be officially tracked and disclosed to the public. They see this as important to the investors they represent. It’s a way to limit “greenwashing” and hold companies more accountable for their impact on society and the planet.