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Global Perspectives

Corporate Climate Disclosures and the Cost of Doing Nothing

Published October 24, 2023
Nzero staff
By NZero Staff
Corporate climate disclosure

With a flurry of news on climate disclosure rules in recent months, companies and stakeholders throughout the country are preparing to comply with climate regulations. Many companies, especially the largest international firms, will need to comply with as many as four different climate and energy reporting regulations in four different jurisdictions, in addition to more local requirements in cities and states across the United States.

Climate Regulation Snapshot

What penalties may affect your organization? Talk to our in-house Government Affairs team to mitigate your compliance risk.

What penalties may affect your oganization?

*Areas indicate regulatory uncertainty

The Costs Of Non-Compliance

Many of these regulations, however, contain large uncertainties, with technical specifics of reporting requirements not yet released and penalties left murky. This uncertainty poses a large challenge to companies, who are not yet able to fully understand compliance costs and whether they will be outweighed by penalties. Many companies are waiting for the final rulemaking on the issue before taking action. Even if legal penalties are negligible, however, reputational risks and effects on market capitalization will not be. The true power of the SEC corporate climate disclosures will not be in the direct penalties that it levies on companies, however large, but in the information it provides to markets and the way that markets will react.

Financial regulatory noncompliance has been found to have a 9x larger effect on the market capitalization of publically traded companies than the size of the penalties themselves.

This will be no less true for climate regulations: noncompliance and corporate climate risks has been shown to lead to increased negative news coverage, higher visibility to investors, and higher trading volume, all of which contribute to lower stock prices. Incoming regulatory structures will standardize and publicize ESG failures and shortcomings, making shocks to stock prices larger and likelier than ever before. In the past, companies have often released voluntary climate disclosures in order to garner positive news coverage and improve their reputation, with inaction not resulting in any quantifiable loss. Once legal regulations surrounding disclosure take effect, however, the reputational damage done to companies that fail to report accurately and adequately will be of a much greater scale.

Publicly traded companies will face more climate scrutiny than ever when climate reporting regulations are finalized. It would be a mistake to think that penalties and legal repercussions are the only risk implicated by this regulatory transition, however. Public pressure and negative effects on stock prices brought by the impending frameworks will have tangible effects on market capitalization. Ensuring that your organization is on the right track towards compliance will alleviate significant financial and reputational risk

How Can You Successfully Navigate These Complex Climate Regulations?

  1. Hire the right team.

  2. Gain an understanding of complex regulatory structures with the help of our Government Affairs team.

  3. Measure your scope 1, 2, and 3 emissions at the most granular level possible using our advanced all-in-one platform.

  4. Export your data into ESG reports with our one-click feature.

  5. Reduce operational emissions and costs with our AI-driven insights.

NZero is an all-in-one platform to track, report, and reduce emissions. NZero also works directly with federal and state government agencies to track and reduce their emissions, and was referenced in the rulemaking process for the SEC’s upcoming climate disclosure regulations. Our dedicated Government Affairs team has decades of experience in state legislatures, federal political advising, and energy policy, and helps our clients navigate regulatory environments and identify relevant government incentives to propel them on their net zero journey.

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