ServiceNow : How the SEC’s proposed climate disclosure rules can affect your business

Edua Dickerson, vice president of ESG and finance strategy at ServiceNow, co-authored this blog.

Environmental, social, and governance (ESG) concerns are rapidly rising to the top of the corporate agenda. Not only is ESG a corporate responsibility, but it's also a win-win for enterprises.

By embracing sustainability, ethical labor practices, and effective processes and controls, organizations are laying the groundwork for increased value creation, according to McKinsey. In other words, ESG is an opportunity to prosper by doing the right thing.

Investors are also keenly interested in ESG. In fact, we're seeing ESG becoming a critical factor in the investment decision process, both for institutional and individual investors.

Climate risk reporting mandate

Evidencing this fundamental shift in investment priorities, the US Securities and Exchange Commission (SEC) released a statement on March 21, 2022, proposing rules to standardize climate-related disclosures-including climate-related risk disclosures-as part of certain SEC filings, such as 10-Ks. The SEC's action follows a wave of similar regulatory requirements in geographies around the world, including the EU, UK, and New Zealand.

If adopted, these new SEC requirements could come into effect as early as Q4 2022. That means large companies (those with a public float of $700 million or more) with a fiscal year end of Dec. 31 will have to start phasing in climate disclosures for their fiscal year 2023 report filed in 2024, with smaller companies following a year or two later.

Increased emphasis on governance and risk

Many large companies already disclose much of this climate-related information in voluntary reports. However, the requirement to include such information in a periodic report will demand additional rigor, increase the need for auditability, and heighten executive and board-level scrutiny.

The proposed SEC disclosures share common elements with existing ESG reporting frameworks, including:

• Direct (Scope 1), indirect (Scope 2), and value-chain-related (Scope 3) greenhouse gas emissions

• How the organization identifies and addresses the impact of climate-related risks over the short, medium, and long term

• How the organization intends to meet its climate-related goals and targets

• How it's progressing against these goals and targets

Essentially, there's an increased emphasis on climate-related strategy, governance, and risk management by the SEC.

Building ESG into the organization

Given the increased scope and mission-critical nature of these SEC disclosures, businesses will need effective tools and processes to gather, analyze, and report on climate-related strategy and performance. They'll also need to create, manage, and measure programs to align company activities with stated climate-related goals.

This visibility and control need to span the entire business. The imperative is about more than just running an ESG department. It's about building ESG into every aspect of what an organization does.

Unfortunately, many organizations-including those aligning to standardized reporting frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD)-still rely on manual, error-prone processes such as spreadsheets and emails for ESG reporting. This approach doesn't scale to efficiently provide the climate-related information that investors need and that the proposed SEC rules help address.

Instead, IT teams need to work with ESG/sustainability and risk management professionals within the business to implement sophisticated software solutions that enable effective execution, monitoring, governance, and disclosure of climate-related initiatives and concerns across the business.

These tools must capture ESG strategy and targets, tie ESG program execution to these goals, provide capabilities to identify and mitigate ESG risks, and automatically gather ESG metrics through internal processes-and by gathering information from third-party ESG data providers (for example, to gather emissions data for an organization's supply chain).

Enabling ESG management

As part of the ServiceNow community, you can leverage your investment in the Now Platform® to empower your business with our ESG management tools. ServiceNow combines the capabilities of ServiceNow® ESG Management, Integrated Risk Management, and Strategic Portfolio Management into a unified solution that helps your business:

• Document climate strategy, including focus areas, targets, and quantified goals

• Assess and track climate risks, including creating controls and executing plans to address these risks

• Identify and prioritize climate initiatives based on their value, cost, and alignment with ESG strategy

• Manage progress of these climate initiatives, keeping ESG programs on track

• Gather climate metrics and evidence from internal data owners with auditable workflows

• Automatically collect climate and other ESG metrics from third-party providers

• Synthesize information, including strategy, targets, risks, projects, metrics, and other data into auditable and traceable disclosures

Find out more about ServiceNow ESG solutions.

Learn more about ServiceNow's ESG progress in our Global Impact Report.

© 2022 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, Now, and other ServiceNow marks are trademarks and/or registered trademarks of ServiceNow, Inc. in the United States and/or other countries. Other company names, product names, and logos may be trademarks of the respective companies with which they are associated.