After several years of proposals and comment, the SEC finally issued new climate disclosure rules in March 2024. Among other things, the rules represent a broader push for transparency, mandating that companies disclose the impacts of climate change on their operations—and their strategy to manage the associated financial risk.

Unsurprisingly, the regulations continue to stir discussion across boardrooms and among corporate governance professionals, as well as in popular media. But are folks overestimating the impact? Below I’ll share several reasons why the new rules may not be as transformative as some might expect. Now, to be sure, the shift from voluntary to mandatory filings will require additional oversight. So, corporations will certainly adopt more compliance-driven and legal processes than before.

But with respect to ESG strategy—we don’t expect a whole lot to change. Above all, ESG is about the capacity to understand your business, navigate risk, capitalize on opportunity, and influence stakeholder perceptions. And these principles remain pivotal, regardless of the evolving regulatory landscape.

EXPECT THE NEW RULES TO HAVE ONLY LIMITED IMPACT BECAUSE:

• They establish minimum, basic standards.
• They do not exceed regulatory mandates in CA and the EU.
• Procurement teams commonly require more stringent disclosure.

YET, ESG DISCLOSURE MATTERS MORE THAN EVER BECAUSE IT REFLECTS YOUR ABILITY TO:

• Navigate and mitigate risk.
• Capitalize on new market opportunity.
• Shape the perception of stakeholders.

Here’s why the new disclosure rules likely won’t disrupt business as usual.

It’s just table stakes. The new rules outline only the minimum that companies should already be addressing in terms of ESG risk management. Key rules include:

• Mandatory GHG emissions reporting for Large Accelerated and Accelerate Filers. Disclosure of direct (Scope 1) and indirect (Scope 2) emissions, if material over a transition period to include limited and reasonable assurance.
• Financial impact disclosure. Reporting on how climate risks materially affect the company’s financials.
• Risk management. Describing the identification, assessment, and management of climate risks.

From our perspective, these aren’t trailblazing initiatives, but rather very basic steps. If you’re not already doing this, you’re way behind. The rules don’t surpass existing regulations because they do not surpass the existing disclosure requirements seen in California or the European Union. Firms with a global footprint or those operating in these regions have been aligning with such regulations for some time, often meeting (and sometimes exceeding) relevant benchmarks. As such, the SEC’s regulations will simply reinforce the status quo for many organizations.

In any case, we don’t expect significant departure from these regulations.

_{Source: ESG Analyzer by Broadridge (2022 analysis of 2,808 North American companies)}

Procurement usually sets higher standards.

Finally, the new rules are unlikely to make a significant impact because, historically, procurement analysis has demanded more stringent ESG disclosure than most regulatory bodies.

Corporations out to bid are often asked to provide detailed accounts of their sustainability measures and practices. Procurement teams want to ensure that their prospective partners can effectively manage potential risks, including those related to health and safety, ethical labor practices and material resources. Because of this, industry leaders often use ESG risk management as key differentiator. It helps them earn contracts.

In short, existing procurement practices on a global basis have set a high bar, often going well beyond the anticipated SEC mandates.

Here’s why ESG disclosure and analysis matters more than ever.

Navigating long-term risk and opportunity. Inherent in any successful business strategy is the dual ability to navigate risks and seize emerging opportunities.

ESG analysis is no different. When we talk about ESG, we’re talking about the ability to assess risk and capitalize on opportunity related to changing climate and changing social patterns. In other words, ESG analysis is about ensuring that your business is positioned to deliver long-term and durable returns.

Put plainly: ESG is about making money.

The imperative of measurement (and understanding your business). You can’t perform accurate ESG analysis without the right data and the right measurement tools. ESG measurement isn’t just a box-ticking exercise; it’s the fuel gauge for your company’s sustainability engine.

To get it right, you’ve got to drill down into the nitty-gritty.

Start by pinpointing the metrics that matter most to your business. Are you a manufacturer? Then your energy consumption, waste management, and supply chain labor practices are likely go-to metrics. In tech? Look at your data center’s power usage effectiveness (PUE) or your product lifecycle impacts.

Of course, it’s not just about picking metrics. It’s about tracking them consistently—and comparing apples to apples. Timing matters too. It’s important to consistently capture data over time. This helps ensure you’re not just seeing a snapshot, but the whole movie of your ESG journey. Finally, benchmarking. How do you stack up against the competition? Are you leading the pack or trailing behind? What are others doing?

The right data, tracked meticulously, lets you see that clearly. And that’s crucial for identifying gaps and uncovering potential new markets or innovations. Bottom line: The right ESG measurement and analysis lets you see things that others can’t. So, when you’re plotting your ESG roadmap, think granular, think comparative, and think continuous. That’s how you turn good intentions into measurable progress—and stand out in the ever-expanding ESG landscape.

Shaping perceptions and influencing stakeholders. Finally, a company’s growth increasingly hinges on its ability to communicate its sustainability effectively. I already discussed above how and why ESG storytelling matters when it comes to earning contracts and forging strategic partnerships. Beyond that, however, ESG storytelling is about presenting a convincing narrative to stakeholders—demonstrating preparedness, strategic foresight, and a commitment to sustainable growth.

In the most immediate sense, ESG storytelling is crucial for your ability to attract capital. Investors are on the lookout for businesses that manage ESG risks proactively and seize related opportunities, as these factors are increasingly seen as proxies for management quality and operational efficiency. A compelling ESG story can thus tip the scales for investors who recognize that companies with robust ESG profiles are better equipped to navigate the complexities of future markets.

ESG storytelling is also a powerful tool for building brand loyalty. You can resonate with consumers who favor brands with strong ethical credentials. On the flipside, compelling ESG storytelling can serve as a critical hedge against reputational risk, helping your business withstand the ebb and flow of market trends and public opinion.

It’s not ‘if’ your business practices will be scrutinized, but ‘when.’ And when that moment comes, a strong ESG narrative will be the cornerstone that supports your company’s reputation. Demonstrating a commitment to values helps foster deep trust with stakeholders, turning them into advocates and strengthening your company’s position in a competitive landscape.

How will you tell your ESG story?

At its best, effective ESG storytelling is a proactive tool for business building and risk management—a pathway to cementing your company’s position in the marketplace.Above all, getting ESG right requires getting metrics right. Understanding what to measure, how to measure, and why metrics matter to stakeholders and customers. You’ll also need an effective communication strategy. Industry leaders tell a specific story with a specific purpose, underpinned by sound strategy. Here again, it’s not just about presenting metrics and measures. It’s about knowing what to disclose, to whom, and when—and in what channel.

In the big picture, effective ESG storytelling shows how your sustainability turns into profitability. And that’s why ESG storytelling necessarily requires thinking beyond compliance.

_{Source: ESG Analyzer by Broadridge}

Let’s talk strategy.

Broadridge partnered with the experts at Third Economy, a leading sustainable investment research and advisory firm, to help clients navigate the complexities of ESG. Using industry ESG standards, frameworks, and ratings, we’ll help you optimize your strategy—and own your ESG narrative.

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