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Why The SEC Climate Disclosure Rule Matters For Ecommerce

Publicly traded companies will soon be required to disclose their climate-related material impact as part of a new rule from the SEC. Although this rule has been temporarily paused, its imposition is imminent, and affected ecommerce companies need to start gathering data now to ensure compliance. Here’s what you need to know about the new rule, the SEC climate disclosure timeline, and how you can prepare.

What Is The SEC Climate Disclosure Rule?

The SEC climate disclosure rule requires publicly traded companies to report climate impact in annual reports and SEC filings. The aim is to promote transparency and identify material climate-related risks so that investors and stakeholders can make informed decisions. Although this rule has a temporary stay pending review, it’s important that ecommerce companies begin developing strategies for data collection and sustainability reporting so that they can be fully prepared when the rule is reinstated.

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Why Is This SEC Climate Rule Important To Ecommerce Businesses?

If your ecommerce business is publicly traded, it’s clear why these climate-related disclosures are important; they will be mandatory for you. However, ecommerce companies that aren’t publicly traded or emerging growth companies should still pay attention to this rule and its requirements.

One of the intentions of the SEC disclosure rule is to standardize and enhance the climate reporting process. At the moment, ESG reporting in the United States is unregulated. Although there are many trusted ESG reporting frameworks, plenty of other non-reputable reporting practices can misinform stakeholders and breed distrust in the entire system. The SEC’s mandatory climate rule specifically outlines which climate-related disclosures must be included, building trust in the ESG reporting process. 

There are many key benefits to this type of standardization.

  • It creates transparency, allowing stakeholders to feel confident in a company’s ability to manage climate-related risks.
  • Companies that aren’t publicly traded and, therefore, are not bound by this rule can use it as a guideline to ensure that their ESG reporting methods adhere to national standards.
  • Although the SEC’s rules differ from mandatory disclosure rules in the E.U., California, and elsewhere, there is overlap. By ensuring compliance with the SEC, your ecommerce company is on its way to becoming compliant with other global standards, too.
  • It builds trust with stakeholders and removes any doubt surrounding ESG reporting practices.
  • It helps companies track, measure, and manage sustainability goals against a nationally recognized framework.

What Are The SEC Climate Disclosure Rules?

The final rules are extensive—the document outlining new SEC requirements is over 800 words long. They use a framework similar to that in the Task Force on Climate-Related Financial Disclosure (TCFD), so their approach isn’t brand new. 

Here are some highlights that are applicable to ecommerce businesses. However, this is far from comprehensive, and publicly traded ecommerce companies should examine the document thoroughly to ensure preparedness. Besides extensive disclosure inclusions, some of which we outline below, it also carries detailed instructions about which forms need to be filled out and submitted, which types of companies need to disclose certain types of information, and details about phase-in periods.

Climate disclosure inclusions

The final rules clearly outline what information must be included in the disclosure. These include (but are not limited to) the following.

  • Any climate-related risks that will have a material impact on the registrant (e.g. climate strategy and short- and long-term financial condition).
  • If a registrant has any strategies or sustainability KPIs to mitigate any climate-related risks.
  • Any processes in place to identify and manage climate risks.
  • Expenditures and losses due to severe weather events.
  • Material expenditures incurred surrounding carbon offsets and renewable energy credits and certificates.
  • How companies will achieve climate-related targets and what those targets are.
  • Audited financial statements surrounding climate impact.

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Different types of companies will need to disclose different types of information. For example, not all companies will need to disclose their Scope 1 and Scope 2 GHG emissions, and some climate-related disclosures will not need to be made if they’re not material climate-related risks. This is why it’s essential for publicly traded companies to read the final rule in depth to understand exactly what they need to report.

SEC Climate Disclosure Timeline

Although the ruling came into effect on March 6, it has been paused as of April 4, pending review by the U.S. District Court of Appeals for the Eighth Circuit. The stay does not change any of the final rules’ requirements as of now. However, because the appeal is expected to take a few months or longer, it’s as yet unknown whether or not the mandatory compliance dates will be adjusted.  

The SEC has made it clear that they will fight for the mandatory climate disclosure and expect it to move forward. Regardless, this rule is not the only required disclosure that may affect ecommerce companies; the E.U.’s CRSD and California’s climate disclosure legislation both demand that many companies to report on their climate impact. Therefore, whether or not the SEC’s climate disclosure rule moves forward, ecommerce companies should still ensure that they create excellent ESG reporting strategies.

How Businesses Can Prepare For SEC Climate Disclosure

Ecommerce businesses can prepare for SEC climate disclosure by ensuring they have read and understand the final rules and making sure that their data collection methodology is up-to-date and follows the SEC disclosure requirements. Luckily, the rule is specific about what types of information need to be included and how it must be presented, so there shouldn’t be any guesswork as to your sustainability audit strategies.

It can all be a bit overwhelming at first, so here are some of our tips for ecommerce companies seeking preparedness.

  • Identify key leaders who will be in charge of gathering documentation for climate disclosure. This will not be an easy process, and you should develop an internal team as soon as possible.
  • Engage with department leaders to begin gathering relevant data for disclosure.
  • Invest in science-backed sustainability software to track and measure your climate impact and risks. Because the SEC follows the Task Force on Climate-Related Financial Disclosure, you can consider finding ESG reporting software that aligns with this framework.
  • Earn an ESG certification from a trusted certifier that follows the framework laid out by the SEC. Although the SEC’s climate disclosure doesn’t require companies to improve their climate risks, investors and stakeholders will prefer companies that demonstrate low risk. By earning a comprehensive ESG certification, not only will you gather much of the data needed by the SEC for your disclosure, but you will also ensure that your climate disclosure displays your company in a positive light.
  • Understand your climate risks and opportunities with environmental product declarations, carbon emissions tracking, energy audits, and more. (Check out our sustainability scorecard to get a quick glance at where you stand.) 

SEC ESG Reporting By Ecommerce Business Size 

When it comes to ESG reporting, your methods will depend on the size of your company. After all, smaller companies will have a far smaller impact to track than big corporations. It’s important that you develop strategies that reflect the size of your brand.

Up to $50K in total monthly revenue 

Businesses that earn up to $50,000 in monthly revenue can take more of a DIY approach to ESG. These businesses will have less to track, and many companies of this size have not gone public yet, so they aren’t beholden to the SEC disclosure rules. This means they can be a little more casual with their ESG reporting while still keeping the disclosure framework in mind. 

With the DIY method, your ecommerce business can invest in sustainability management software to help you track and measure your current impact and develop strategies to mitigate any climate risk. EcoCart offers plenty of resources to not only track your impact but also take responsibility for your carbon footprint through carbon removal projects.

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$50K-$100K in total monthly revenue

When you start making up to $100,000 in monthly revenue, sustainability tracking and reporting gets a little more complicated. In this case, you can still use ESG software to measure your climate impact, but you will need to make sure that it integrates with the rest of your tech stack for a more holistic view. 

As your business grows and your sustainability strategies become more extensive, you may find that you need help sharing your sustainability initiatives with your clients. That’s why EcoCart offers resources to help you share your ESG journey in a way that resonates with your stakeholders.

Over $100k in total monthly revenue 

Once you make $100,000 or more monthly, it becomes nearly impossible to track your impact on your own, especially if your sustainability reporting needs to be compliant with SEC climate disclosure. At this stage, you should invest in sophisticated technology, like EcoCart’s Life Cycle Analysis, which can automate the calculations around your raw materials, manufacturing processes, transportation, product use, and end-of-life. Consider hiring an external sustainability consultant to help you track your ESG. By hiring an expert, you can take out all of the guesswork and ensure that you’re fully prepared for when the SEC disclosure final rules roll out.

Is your business ready for SEC climate disclosure?

Don’t be left scrambling to gather relevant data for SEC climate disclosure. EcoCart offers plenty of solutions to help your ecommerce business track and measure its climate-related impact so that it can be ready when the final rules are implemented. Contact us to learn more.

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