A Guide to ESG Reporting in the US

ESG reporting is a process of generating reports that define a company’s environmental, social, and governance activities. While it is not mandated in the US yet, an increasing number of companies report their information voluntarily. This is due to the importance of ESG in communicating business strategy. Companies can no longer ignore ESG reporting, given the growing significance that stakeholders place on it.

On March 6, 2024, the US Securities and Exchange Commission (SEC) adopted the final rules requiring registrants to provide climate-related disclosures in their registration statements and annual reports. These rules were set to be effective from May 28, 2024, with implementation beginning in the fiscal year 2025. However, the effective date of the final rule is delayed pending judicial review.

According to Gary Gensler, SEC Chair, “The final rule will provide investors with consistent, comparable, decision-useful information, and issuers with clear reporting requirements.”

 Also read : New Rules by SEC for Standardizing Climate-Related Disclosures

Financial Statements Disclosures

The ESG Regulation S-X, Article 14, requires all registrants, including smaller reporting companies, emerging growth companies, and foreign private issuers, to disclose specific information in the footnotes of the financial statements.

The disclosures should be prepared using financial information compatible with the consolidated financial statements and the same accounting principles. These disclosures include:

1. Effects of severe weather and other natural conditions (hurricanes, tornadoes, wildfires, etc.)
2. Certain carbon offset (emission reduction, removal, or avoidance of CHGs calculated and traced to offset a company’s emissions) and renewable energy credits (a credit or certificate for each megawatt-hour of renewable electricity supplied to a power grid)
3. Material impacts on financial estimates and assumptions (a qualitative explanation of severe weather events or climate-related targets on the estimates and assumptions used in financial statements)

Existing audit requirements for financial statements will apply to these disclosures.

Disclosures Outside Financial Statements

Certain requirements impact annual reports and registration statements in ESG reporting. These disclosures are as follows:

• Greenhouse Gas (GHG) Emissions:

  Accelerated filers and large accelerated filers are required to file their Scope 1 and Scope 2 GHG emissions if they are material.

1. Scope 1 emissions are GHG emissions from operations owned or controlled by a registrant.
2. Scope 2 emissions are indirect GHG emissions that result from the generation of acquired or purchased heat, electricity, steam, or cooling consumed by operations owned or controlled by a registrant.

• Governance:

  According to the final rule of ESG reporting or climate disclosure, the registrant must disclose information about how the board of directors monitor the assessment and management of climate-related risks. This includes the following:

1. Identifying the specific board committee or subcommittee responsible for overseeing these risks
2. Description of the processes used to inform these committees of the climate-related risks
3. Explanation of whether and how the committees monitor progress towards any disclosed climate-related target, goal, or transition plan

• Strategy:

  As per the final rule, registrants must disclose any climate-related risks that have affected or are expected to affect their business strategy, financial condition, or results of operation.

        This includes specifying whether the risks are expected to arise in the short term (within the next 12 months) or the long term (beyond the next 12 months). These include both acute physical             risks (like floods and hurricanes) and chronic physical risks (like sustained higher temperatures).

• Climate Risk Management:

  Registrants must disclose their policies for “identifying, assessing, and managing” significant climate risks. This includes outlining how the registrant:

1. Assesses whether a risk has occurred or is likely to occur
2. Decides its course of action (mitigate, adapt, or accept) in response to identified risks
3. Determines the priority of addressing a material climate-related risk

• Target and Goals:

  Registrants must reveal information about their internal climate-related or publicly announced targets or goals if they materially affect the business, financial condition, or results of operation. The required disclosures are given below:

1. The scope of activities
2. The process of measuring the targets
3. Timeframe for target achievement
4. Baseline for tracking progress and assessment methods
5. Strategies for target achievement
6. Annual updates on progress towards targets, including actions taken

Bottom Line

 ESG reporting has become an important part of sustainable business practices to foster transparency and accountability. With the implementation of ESG regulation in the US, companies are urged to focus on environmental, social, and governance factors.

If you are looking to disclose climate-related information for your company, all you need is a trusted partner like DataTracks! We have prepared ESG reports for more than 28,000 clients in various regions. Our professionals are well-versed in compliance requirements and stay abreast of regulatory changes. So what are you waiting for? Speak with an expert at +1 (646) 904-8324 or email @enquiry@datatracks.com.