Attestation: Practical Reflections on What the SEC Climate Proposal Will Require

Amongst the many modifications set forth in the U.S. Securities and Alternate Fee’s proposed guidelines governing climate-related disclosures are the attestation necessitiesprotecting registrants’ greenhouse fuel (GHG) emissions disclosures. This text supplies a common overview of those attestation necessities and identifies some sensible penalties public firms might expertise as they anticipate compliance with the new guidelines.

Underneath the proposed guidelines, massive accelerated filers and accelerated filers could be required to supply an attestation report protecting the Scope 1 and Scope 2 emissions disclosures of their annual stories and registration statements. The attestation stories initially could be required to supply restricted assurance (equal to the stage of assurance offered for a registrant’s quarterly monetary statements in a Type 10-Q) for such emissions disclosures, and finally could be required to supply affordable assurance (equal to the stage of assurance offered for a registrant’s audited annual monetary statements in a Type 10-Ok). The proposed guidelines don’t prescribe a specific attestation commonplace for use. As a substitute, the SEC proposes that the attestation report be offered pursuant to publicly accessible requirements which were adequately developed following due course of procedures, just like the necessities for figuring out the framework to be used in administration’s analysis of inside management over monetary reporting. Furthermore, public firms must (1) use an attestation supplier that meets specified necessities, together with minimal experience and independence requirements; (2) be sure that the report produced by the attestation supplier consists of sure minimal components; and (3) present further disclosures about the attestation supplier and the attestation engagement.

Plan for the scramble for expertise

Underneath the proposed guidelines, a professional attestation supplier is one which (1) has experience in GHG emissions primarily based on important expertise measuring, analyzing, reporting, or testifying to GHG emissions and (2) is impartial from the registrant, and any of its associates, for whom it’s offering the attestation report. Though the proposed guidelines state that an attestation supplier needn’t be a registered public accounting agency, few ESG advisory firms are prone to have the requisite environmental data and trade expertise wanted to carry out the attestation to satisfy each the SEC’s commonplace and the firm’s expectation. In essence, the attestation necessities in the proposed guidelines will drive a serious enlargement in the market, with the doubtless consequence that the universe of certified attestation suppliers will lag behind the demand necessitated by the adoption of those guidelines.

To mitigate future problem, public firms ought to contemplate bringing high expertise in-house to facilitate firm engagement with exterior reviewers or authorities and compliance employees. The presence of a dependable inside useful resource ought to guarantee entry to experience and related exterior skilled networks. Due to the independence necessities beneath the SEC guidelines, firms won’t be able to take away the want for exterior sources totally however taking proactive measures now ought to assist forestall undesirable dependence on exterior steerage and supply for a extra environment friendly attestation course of.

Be intentional about coordinating assurance companies

One other distinctive facet of the attestation necessities is the integration of climate-related disclosure (particularly GHG emissions) into current, audited monetary statements.Though the accounting occupation believes that CPAs are ready for the process of offering assurance for sustainability info and has revealed a roadmap to help firms with voluntary ESG/sustainability reporting, these tips might not adequately handle the complexities in scoping, measuring, reconciling, and reporting emissions information throughout the whole operational and geographic footprint of not solely the firm itself however its Scope 2 suppliers; specifically, the complexity of standardizing judgments that can have to be articulated inside the monetary statements concerning sure monetary impacts. In most cases (at the very least in the quick time period), monetary assertion auditors will lack the experience to supply assurance on the emissions information and, conversely, GHG attestation suppliers who usually are not the firm’s monetary assertion auditors will need to keep away from every little thing else in the monetary statements. To adjust to each the emissions attestation necessities and the monetary assertion audit necessities, important coordination in the type of intensive discussions and written documentation can be required amongst firm management, attestation suppliers and exterior auditors.

Acknowledge that there are different requirements for GHG emissions attestation

Whereas the framework for climate-related disclosure in the proposed guidelines largely has been borrowed from the TCFD3 and the GHG Protocol4 in an try to supply constant, comparable information, the multiplicity of approaches for attestation, developed over the years to confirm the validity of emissions information, emissions offsets, and different components of ESG reporting, signifies that there isn’t any uniform strategy to information integrity or the attestation of knowledge integrity, particularly throughout the full operational and geographic vary of firms in different industries. Thus, attaining compliance on this inchoate panorama would require sturdy governance from the outset to make sure that information is accurately analyzed and categorised primarily based on its respective origin and methodology of manufacturing.


1. As proposed, the attestation necessities could be in new Rule 1505 beneath Regulation S-Ok.

2. Moreover, additional integration and consideration could also be required for some industries/firms already required to yearly report and certify sure GHG emissions to the EPA beneath 40 CFR Part 98. To understand the complexity they’ll be going through to mix GHG reporting necessities, coated firms ought to contemplate learning find out how to coalesce the broader duties of the SEC schema with any preexisting necessities of the EPA. Any distinctions will additional necessitate firm coordination to efficiently report and attest.

3. The TCFD or “Task Force on Climate-Related Financial Disclosures” was created in 2015 by the Monetary Stability Board (FSB) to develop constant climate-related monetary threat disclosures to be used by firms, banks, and buyers in offering info to stakeholders.

4. The GHG Protocol establishes complete international standardized frameworks to measure and handle greenhouse fuel emissions from non-public and public sector operations, worth chains and mitigation actions. Notably, the GHG Protocol recently announced an initiative to find out the want for added steerage on its current company GHG accounting and reporting requirements.

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