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Navigating the SEC Climate Disclosures | Insights and Strategies

Mar 21, 2024
On March 6th, 2024, the SEC announced their ruling on climate disclosures. This rule marks a significant shift in sustainability reporting for public companies, and understanding the implications is crucial for organizations, investors, and professionals across industries.
EisnerAmper’s ESG & Sustainability team discussed the intricacies of the SEC's new climate disclosure ruling, providing you with practical insights and strategies to ready your organization for compliance.
Watch now to learn how ESG reporting can enhance transparency, engage stakeholders, and position your company for success.


Charles Waring:Good morning, everyone, and welcome to our webcast here. We're very excited to be with you today and talk to you about the recently adopted SEC climate-related risk disclosure rules. Joining myself will be my EisnerAmper colleague, Lourenco Miranda, and our friend from Langan, Leslie Wong. Before I turn it over to them for their introductions, I'll just say again that we're very excited to be here. There's a lot that's coming out with this topic and there's a lot to cover here. This was adopted two weeks ago and there's been a lot of discussion over the last two years as the SEC first proposed the rule and through the path of adoption.

So, our agenda today here is, we'll give the overview of the final rule here. We'll talk about the key challenges that are still being worked through and some of the things that are already known and key considerations here. Then we'll talk about the key aspects that a lot of you online will be looking for is, how to prepare and what does it mean for your specific entity given the size and scope of your company. We will have those key takeaways, so things that you can go back to the rest of your teams and your organizations to think about and put into your plan for the rest of '24 here. Then we'll take questions. So, we do have a lot to cover. Please use the Q&A widget to submit questions throughout the presentation and to the extent that I'll be monitoring questions for the first half and if there's things that we need to stop, and we'll pause and we will, but please submit those throughout the presentation.

So, now I'll turn it over to Leslie to introduce herself.

Leslie Wong:Good morning, everyone. I'd like to thank Charles and Lourenco for inviting me to participate with them. I lead the ESG practice of Langan Engineering and Environmental Services, so I'll be presenting the more technical aspects of the rule, but now I would like to hand the conn over to Lourenco to get into our content.

Lourenco Miranda:Thank you so much, Leslie. Thank you, Charles and thanks everyone for being here with us today. As Charles mentioned, it's very exciting times, so we have a rule that will guide us through this climate-related risks.

My name is Lourenco Miranda. I'm managing director of EisnerAmper ESG and Sustainability practice. I've been with the firm for the past two years and in the industry more than 20, so I'm excited to see that we are moving ahead with a rule that will guide everyone that all public companies to disclose their financial impact of their climate-related risks.

So, we start here today with an overview of the rule and the message is very straightforward. It's very simple. The rule is basically a set of risk identification and assessment. So, it's risk identification and assessment in its basic form and the only difference here is that the underlying object, the underlying risk that we are talking about are climate-related and the impact of those climate-related risks have in your business. So, you have financial risks, you have market risks, you have business risks, and now you are introducing a new type of risk that you have to identify, measure the impact and disclose which is related to climate. What is that and what's the importance of this? The importance is that there are a lot of parts of the businesses that could be impacted by a climate risk.

So, the first thing you need to do obviously is to identify those. Start with your business drivers, so what will drive your business and what a climate risk could impact that specific business? To give you an example, if it's an important part of your business depends on a specific location and that location is in a flood-prone zone, that will be a very good indication that flood is a climate-related risk that will impact your business, but the key word here that the SEC introduced is material. So, the material impact in your business. So, we'll talk a little more about materiality in a few minutes, but you have to be very careful when you start identifying and assessing those risks, we have to understand which those are material impact to your business.

Of course, as a natural progression of your risk identification and assessment, you have to start putting together mechanisms to mitigate and adapt to those risks, or you observe a specific type of risk, flood-prone risks or flood zone risks, so flooding is a climate-related risk. So, what is it that you're going to do in order to mitigate that, or to adapt by business to that specific type of risk? So, it's a natural progression of your risk identification and assessment. So, first, you start with identifying and assessing those risks and then what is that I need to do in order to mitigate those? So, it's a natural risk management process.

And of course, as it will do with business risks as you do with market risk and any other type of risk, you have to set some governance and oversight for that specific risk. There's nothing different here, exactly the number three, there is governance and oversight. So, the rule requires disclosures regarding to the oversight of climate-related risks by the board directors. They don't necessarily need to appoint a board director or the level of understanding of that board director. So, within the past, the proposed rules and the other rules that are elsewhere, you have to identify one specific point of contact. Here, it's not necessary. So, you have to create this governance, you have to create this oversight mechanism so that you inform the board, report to the board all the material risks that you identified during your risk identification phase.

Of course, after that, you sit down and you start mapping that process. You have to formalize that process into a set of policies, a set of procedures that will describe the process of identifying those risks. So, first, you identify the risks, assess the materiality, put mitigation and adaptation activities, create the oversight and the governance, and now you write the process and very carefully write this process, identifying all the internal controls and the risks of this process. You have the data, you have to find where the data is, how you obtain the data and all the processes, and then procedures and internal controls associated with this risk management process.

In the end, number five, of course, when you have a risk that you identified, you want to set some targets and goals in order to minimize that risk and manage that risk. So, how you know that actually all your mitigation mechanisms are working and if you are really progressing towards your goal in terms of mitigating that risk? So, you have to set targets and goals related to climate-related risks that have materially affected or are likely to affect your operations or financial condition. These must be disclosed. So, targets and goals, they're going to get into more details later on today, but you have to bear in mind that this is nothing more than a risk identification, a risk management process, identify risks, create mitigation activities, governance that will support this risk management. Then you have to write and formalize this process into policies and procedures, set targets and goals. So, it's nothing different than what we've been doing for the other types of risks, now it's for climate-related.

There's one difference here in addition to those requirements, that the SEC also requires disclosures related to Scope 1 and Scope 2 emissions for certain larger registrants. So, if you are a large accelerated registered or you are accelerated registered, you must identify those emissions, disclose them and report them.

Then there is also a requirement to disclose the financial statement effects of severe weather events and other natural conditions. So, if there is a hurricane that will impact your plant, there's a damage to your physical assets in that specific plant, you have to report the losses and the related costs that you had with that specific event, but that's another requirement that the rule is asking. So, it's very basic risk management process.

Leslie Wong:If I could chime in just a little bit on that?

Lourenco Miranda:Please, yeah.

Leslie Wong:A good practical guideline for doing this risk analysis is the TFCD, standard Taskforce on Climate-related Financial Disclosures. It is a formalized process that is mentioned in the SEC rule, but not required to be used by the SEC rule, but if you are a professional who routinely works in this area on risk for your company, it will inform you on the unique climate-related aspects, so you can educate yourself on this unique twist and more comfortably address these risks for your company.

Lourenco Miranda:That's an excellent point, Leslie, thank you for chiming in. The TCFD, as you mentioned, they have training materials. They have a lot of guidelines that will help you to implement this rule, and then the rule is based on those recommendations.

One thing that the SEC wanted to do is to have a phasing approach for the disclosures and of course, depending on the different types of filers that are there. So the first one is larger accelerated filers, you have until the end of 2025 to disclose, and identify and assess any financial statement effects of climate-related risks. So, you have to start this year already to cover those. It's only in 2026 that you have to report on Scope 1 and Scope 2 emissions, but for those that understand how difficult it is, it takes quite some time to get those identified, creating all the data management that will support this reporting. So, you have to do this by 2026.

Then you have assurance, we do want to talk more about assurance along this presentation. For limited assurance by 2029 and reasonable assurance by 2033, and you'll see the difference of those two in a moment. For accelerated filers, you have a little more time. It's until 2026 that you have to do the disclosure and financial statement effects, identifying the risks and assessing materiality of those risks and reporting.

GHG emissions reporting only by 2028. You still have some time there, but I wouldn't be so comfortable with this. GHG emissions assurance, it's a limited assurances by 2021.

There is also smaller reporting companies, and emerging growth companies and non-accelerated filers that have to disclose their financial statement effects by 2027.

That's a phasing approach that the SEC wanted to create, so that the filers will have more time in order to adapt to these new requirements.

Leslie Wong:To weigh in with a quick practice note here, this is a very aggressive timeline to get this work done. Collecting the data that you need for your Scope 1 and 2 emissions inventories always takes longer than people think it will take. And identifying and categorizing the risks takes a long time as well because, remember, these are going in your SEC disclosures. They absolutely have to be right. So, this very aggressive timeline, you're probably all aware that this rule has been temporarily stayed by a legal action, more time to prepare as good. Do not take that as time to delay. It gives you more time to prepare and be comfortable with your submission when it's ready to go in.

Lourenco Miranda:Thanks, Leslie. Now, I'm going to stay with you, please, to talk a little bit more about materiality as a qualifier, Leslie.

Leslie Wong:Thank you, Lourenco.

Materiality was a big feature in the comments to the original version of this rule that did not use materiality as a qualifier for a lot of disclosures. My response to that is, be careful what you ask for, you just might get it. Now that we have materiality as a qualifier, you have to determine what risks and opportunities are material to your operation. That can be very simple if you have a simple definition to materiality, such as 5% impact on revenue, 1% impact on revenue in a certain category, but that is not the definition for materiality to the SEC. The SEC's version of materiality as set by the Supreme Court states that a matter is material if there is a substantial likelihood that a reasonable investor would consider it important when making a buy-sell determination or deciding how to vote their shares. It goes on to say, a matter is material if a reasonable investor, again, would view the omission of a disclosure as having significantly altered the mix of information that is available. As you can imagine, this opens up quite a minefield because who is the reasonable investor?

The reason that determining material risks is going to take a while is that you are going to have in your company different opinions on what the reasonable investor would expect. This is a potential minefield in that it could take a lot of time and it could also take a lot of investment if you hire outside advice. My recommendation to you is, if you can demonstrate your position on materiality to a potential auditor, you are probably correct. Also, if it is going to take a huge project to demonstrate immateriality, chances are the topic is going to turn out to be material anyway. This is an area where common sense really needs to prevail. This is also an area that is going to touch outside risk and go to your Scope 1 and 2 emission disclosures.

When you go through all of your emission sources, you can omit things that are not material, but you're going to have to do a materiality assessment on those aspects before you can comfortably eliminate those emission sources as a material and then pass audit down the line. You can see I'm queuing this up for Charles in a big way, because assurance of this data is the ultimate goal.

I always close with a practice guide, to apply this principle-based concept of immateriality, I recommend doing a risk analysis per this TCFD method and memorializing it. You can use that later when your data and your submission is being assured to demonstrate you have followed the TCFD standard and therefore have some standing in your position. I recommend ranking risks on a matrix to determine which ones... There's going to be a range of materiality, from immaterial, to vaguely material, to very material. That will allow you to draw a line at some point, and everything above that line is what you elect to disclose. That is also something you can provide to your assurance provider to help them in their assessment.

Then the final advice is to revisit materiality every two to five years based on business conditions, because this is the principle-based standard, it's going to change along with you and your company.

Lourenco, would you like to add anything?

Lourenco Miranda:Oh, I think it's perfect. I think this is one of the things that I've been hearing from clients from industries that how to identify these risks and how to assess materiality, your own point, this is an extremely important part of the rule. Basically, it is the new part of the rule that it can open a lot of a can of worms and it's going to be, as you mentioned, an important factor for the assurance in the end.

The other thing that-

Leslie Wong:I want to hand this back to Lourenco for climate-related risk to be identified.

Lourenco Miranda:Thank you, Leslie.

The other point that is more important here in the risk identification and assessment is the fact that it's the point of view of the investor, which is a little different from other rules because the SEC is interested into protecting the investor and the ability of the investor to make the investment decision. So, you have to put yourself in the investor's point of view, investor's shoes.

And what is that we have to identify? And then this in every other risk, every other type of risk, you have to come up with a taxonomy. This is the taxonomy for climate-related risks. There are two basically different types of climate-related risks. The first one is physical, the second one is transition. Physical risk is divided into two, acute risks and chronic risks. If you think about all the natural disasters and all the natural events, they are linked to physical risks. All the natural disasters or natural events that could cause a disruption to your business, could cause damage to your physical assets will be classified as physical risks. And what is an acute risk is a very short-term risk, something that will damage the infrastructure, damage your assets due to extreme weather events, hurricane, floods, tornadoes. So, if you have your plant in a specific zip code, in the zip location that is flood-prone or there's high incidence of tornadoes and hurricanes, then this could damage your production, that could damage your business in the short-term.

And as any other climate risk, you have to look at every other risk as well. I have to look at the short-term but as well as the long-term. That's why chronic risks play a role here, because the chronic risk will be the long-term impact of physical risks or climate-related risks on the physical type. So, there are operational disruptions due to sustained adverse weather conditions, higher temperature, sea level rise, drought, wildfires. So, if you have a development of a new building or development of a new investment near the coast and this coast is prone to sea level rise, then you have to be aware if you're investing this in 25 years, 30 years, 50 years from now, real estate is a good example of that, those are long-term investments. You have to pay attention to these type of risks or those are chronic risks that will impact your business in the long run.

How does that impact your bottom line? It's what we call the transmission channels. So, the way that you identify the risks and then you assess materiality and assess the impact effects in your balance sheet and your income statement is through what is called the transmission channels. So, for physical risks, there are a few examples here. Direct impact on physical assets and infrastructure, you have a direct impact on your assets and you have to review them. All the costs incurred in all those losses, you have to report those as well as part of the rule. And disruptions in supply chain and operations, we've seen that very recently. Increased operational and capital costs, regulatory and legal implications due to environmental damage, market and reputation implications from ineffective risk management. So, all of those are ways that a physical risk can impact your bottom line.

And there's a transition risks. Transition risk is a little more complex, it's hard to... Because physical risk, you see them. So, natural disaster, you see the impact. As the name says, it's physical, it's tangible. Transition risk is more delicate, it's more complex. It's related to compliance costs associated with new climate-related laws and policies, for instance. To give a very good example, if the state is putting some sort of carbon tax on utility companies or a target on all the utility companies in their energy mix, they have to go to net-zero in a few years from now, 10 years from now, 20 years from now, there are going to be a cost for that. Then this cost will be passed on to the users. Then they go, "You have a cost associated with a transition risk."

I have other examples of transition risk for you here to see, I'm not going to go through all of those, but it is different from physical risks and that's subtle difference between what is that going to cost me, because there is a change in a carbon policy, or a climate policy, or a tax, or something that will impact my business, a legal change in a legal environment. So you have to pay attention to those. One way of doing this, to managing transition risks, is to identify all of the legal environment and the compliance environment of each of the individual state, because here in the US its complexity also goes by state, and then you apply those in your risk identification and assessment. Those five items that you had before, transition risk is an important one.

So, now, Leslie, you can compare the SEC rule with other disclosure rules, because we have a lot of questions maybe from the audience. I see a question from the audience already popping up, what is the difference between the SEC and the other existing disclosure rules that we have already in place?

Leslie Wong:Thank you, Lourenco. I already see a question coming in about whether these rules can exist at the same time. The unfortunate answer is, yes, states have the authority to implement their own rules. Assuming the courts decide that they have the jurisdiction to implement them, they can implement their own rules while there is a similar federal rule in place. What does that mean for compliance with these rules? That means you have to do your applicability determination for both. You have to comply with both. What that means is sorting out the requirements of both determining where they overlap, where they are unique and where they may actually conflict. That is what we're going to do now very briefly.

What we have in play now are two different California rules, one specifically for emissions disclosure and one for risk disclosure. These are final rules. They have been challenged legally, but they are final rules. We also have what I call a copycat rule effort going on Washington, in Illinois and in New York, and possibly there will be some other states adopting these rules. That will really muddy the water unless they truly are copycat rules. Notably, those rules are all focused on emissions disclosure and don't address risk disclosure.

So, now let's look at the two categories, emissions disclosure and risk disclosure, and assess how the two rules are different. You've probably heard if you have read anything about the SEC rule, one of the big deals about its finalization was that it did not require disclosure of Scope 3 emissions. Well, the California rule does require a disclosure of Scope 3 emissions. So, within that emissions disclosure, there is a significant difference. That means if you are reporting under both, you're going to have to do all three categories of emissions.

Under risk disclosure, you have the TCFD standard required in California, but only referenced as more or less a guide in the SEC rule. I think it will be easier to harmonize the risk disclosure than it will be to harmonize your emissions disclosure. Also, the California rule is a biennial report that is published publicly. It does not go through an agency for a review for any kind of compliance review other than you did it. Because the SEC disclosure is very, very formalized, I think what companies will do is do their SEC disclosure and use that as a guideline to do their California disclosure.

Now that we got through some of the differences of the rules in terms of technical aspects, how about applicability? Who is affected by these rules? Who's going to be in for complying with both and who's going to be in for complying with one only? The SEC rule, of course, by its nature applies to public companies, and many of these requirements are concentrated in your large filer category. The California rule is very broad. The California rule applies to private and public companies, and its demarcation applicability is revenue. For emissions disclosure, it applies to companies with more than a billion dollars of revenue. For risk disclosure, it applies to $500,000 in annual revenue.

So, the next question is that revenue. Is the revenue revenue gained in California or revenue gained by the company at large? Even though the implementing regs have not been issued yet by the California Air Resources Board, it's been pretty much confirmed that that is overall revenue of the company, not revenue in California. And determining whether you do business in California and California therefore has jurisdiction over you is determined by the amount of business you have in California, which according to current standards that are not focused on this rule is very, very broad. Almost any activity, sales presence of an office employees, almost any activity will qualify as doing business in California. Don't count on that because, again, the implementing rules have not come out and that could be changed, and it would not be surprising if it is changed so they can get this under legal review.

The last issue to cover is assurance requirements. Assurance requirements are fairly copacetic, both the California rule and the SEC rule do require assurance activity after the first few filings. In terms of timing of the filings, Lourenco went through and detailed the SEC timings. The California timings are more or less parallel. They're maybe a year behind the SEC rule, but the determiner in these years of applicability is really going to be when these rules actually get through the legal process, or at least are no longer stayed and are allowed to go into effect. Then you're going to get your timeframe starting as indicated in the rule.

To throw in one more wild card, we've been talking about the US only. Many, many US companies, particularly larger listed companies and larger private companies do business in Europe. If you are doing business in Europe, you are likely to come under the Corporate Sustainability Reporting Directive in the EU. I'm not going to go into the applicability standard for this, because it is very complex and arcane with multiple equations based on the number of employees, and the number of locations and the amount of revenue gained in different locales, but suffice to say that if you are doing business in Europe, you need to look at potential applicability of the Corporate Sustainability Reporting Directive. If you are not a European company, you're a US company, you're not likely to be looped in until 2028, 2029, but be advised that you do have the Scope 1, 2, 3 greenhouse gas emissions requirement, and they throw in yet another materiality standard.

The materiality standard for Europe is called double materiality. When you do a double materiality assessment, you assess not only the impact of climate change on the company, but the impact of the company on the progression of climate change. There is a very formalized procedure for that outlined in the CSRD standard, so that is going to create complications for co-reporters in that you are going to have two materiality standards that could potentially create conflicts and you're going to have to do a matrix of requirements to make sure you are not violating either when you do your materiality assessments. There are some other standards involved, the 12 European Sustainability Reporting Standards and the EU taxonomy. When you put them all together, it's about as big as the SEC reporting rule with all the commentary, so it's a lot to digest.

To wrap, this protocol also requires assurance. So assurance is going to be key throughout the process and you can expect your assurer to focus on these different requirements, if you are subject to different requirements, to make sure you are not creating a conflict in your disclosure.

Lourenco, would you like to chime in?

Lourenco Miranda:No, I think you nailed it, Leslie. No, nothing to add.

Now, we are going to have a very brief recap of what we discussed so far. So, the step-by-step towards compliance is most of the things that we already covered today. There's one aspect of the third-party assurance that we'll talk in a little bit, but the first thing that you have to do is to understand the requirements that Leslie was very kind to put all the different rules that exist today. So, you have to understand the requirements of those rules as well, of those superimpose the others one, how are you going to deal if you have to comply with all of those? So, we have to understand those. We have to understand the requirements. We have to understand the requirements because you don't operate in an isolated form, even if you're not directly... You have to comply directly with a specific rule does not necessarily that you have to be part of... You have to comply with that indirectly. So, you have to understand the requirements, first thing.

Then the second thing is, assess material climate-related risks. We saw physical risks, transition risks, how those impact in your bottom line. You have to understand those, have to identify those, and materiality is key, as we'd already discussed. Then as any other type of risk, you develop governance and oversight mechanisms. You integrate the climate-related risks in your risk management process. So, another element in your risk management process, you have all the different types of risks. This will be another one that you have to manage, and report and create governance. Prepare disclosures, implement system and controls. This is extremely important, because there's a lot of data involved, a lot of creation of data, not only structured but unstructured. As you see, risk identification requires a lot of text, so you have to implement system and controls for data and for documentation. And file disclosures, of course we have the file disclosures in your 10-Ks, and obtain third-party assurance when applicable.

That's the segue for the rest of our presentation. I'm going to pass it on to Charles that will start talking about the third-party assurance.

R. Charles Waring:Thank you, Lourenco and Leslie, for great overviews as it relates to the rule and the parts of preparation here.

As Lourenco's mentioned, one of the key areas here is, all right, this is going to go into your 10-K, your registration statements, what do we need to do and what does this mean for audit assurance, et cetera. So, first, I want to cover the aspects around those disclosures or elements related to governance, strategy, risk management, target and goals, and GHG emissions are part of what I would call the front of the 10-K. So, that is areas where it's not part of the audited financials, but those need to be supportive, substantial, accurate based upon management's understanding and processes in place, et cetera. So, that's a key element here.

Then we've got the other areas, which is part of the financial statements and would be subject to audit procedures related to the disclosures into the footnotes here. So, within that, again, it's what Lourenco's mentioned is that we think about what are the capitalized cost, expenses, charges or losses really in two components here. So, the first would be result of severe weather or other natural conditions. This is terms that is used throughout the rule. So, obviously severe weather, and I know that we were just talking with Leslie, she's down in Houston experiencing some severe weather herself, so anything related to the hurricanes, fires, extreme cold, extreme heat, drought, anything that really is impacting from those other areas here. So, I think that if the company is suffering losses or incurring expenses because of that, that needs to be disclosed.

The other component is that if the company, as part of their strategy, are using carbon offsets or renewable energy certificates, RECs, to offset their emissions and the cost that goes along with that, that needs to be disclosed in the footnotes here. This really gets to the principle of the disclosure and the fact that many companies are having those net-zero goals, and part of that net process is obtaining carbon credits and carbon offsets. Well, I think that the SEC really are trying to peel back what is true emissions reductions and/or purchasing of offsets and how does that impact a company's financial statements here. Then the last component is that if there's other estimates or assumptions that are related to the severe weather natural conditions, that needs to be disclosed as well as if the company has set targets and/or have developed transition plans, the costs that are associated with that.

So, if there's an element that the company is looking to relocate their facilities or their operations from geographic areas that are prone to severe weather or other natural conditions, and so thus they've got that transition plan, what are the costs that are associated with that?

I do want to mention that the component around materiality, which Leslie did a great overview of, that is focused around what I would call the top part of the 10-K, so what's in that governance strategy, particularly the risk management targets, goals and missions. They have set for the financial statement impact that there's really a de minimis level here. So, anything that would be costs or charges against that would really exceed $500,000 or 1% of equity as well as any expenses that would be anything more than the $100,000 against pre-tax income or 1% of pre-tax income. So, there is elements here that if there's de minimis amounts that doesn't necessarily need to be put into a footnote disclosure, but chances are that anything that would be associated with anything of a severe storm, hurricane, stuff like that, there's going to be elements that are going to exceed those amounts there.

Moving on, so the other aspect, and it's been brought up and this isn't necessarily unique for the SEC disclosures, but there is an aspect around the assurance requirement here and wanted to touch on, because it is articulated and there are certain requirements here for limited versus reasonable. One of the things I just wanted to spell out in these two columns, what goes into each one. So, a limited assurance engagement, and that's one that's going to be first applicable to large accelerated filers around their GHG emissions and then accelerated filers, so this is essentially done for AICPA under your review standards for financials. The genesis here is that the assurance providers, that they're not aware of anything that would materially alter what management is asserting to. So, essentially what they're reporting as their Scope 1, Scope 2 if material emissions here.

Now for the reasonable assurance, that one now under the SEC is only applicable to large accelerated filers. It's not something that is... That level is not required for accelerated filers... Correct, for accelerated filers. So, this is more in line with what you would have for your audited financials, SOC reports, that higher level of assurance. So, the opinion is not that we're not aware of any material events or anything that would materially adjust what management is asserting to. This is one where the assurance provider is that based upon what has been provided against a certain criteria, so likely greenhouse gas protocols, it is presented in all material respects.

So, those are the difference in thresholds on the report, but what's behind that? So, one of the things here is that there's still going to be a need to understand what's the process in internal controls as it relates to greenhouse gas reporting. With a limited assurance one, we're obligated to understand. We're not obligated to test, so that's an important component here, but at the same time, you're going to need to demonstrate that there is a formal process in place that there are controls in place. It's not something that is loosely strung together, because if you don't have that well-defined process, that would lead into a situation where you could have a material adjustments to the assertion there. The level of procedures increases.

One of the things I think that Leslie was mentioning is, it's important when we're talking about what's being captured and what's in scope for the greenhouse gas emissions, it's important that there is a determination on what's in scope, what are the boundaries, because that's going to be important for a company to articulate, capture and, again, for the assurance provider to agree with. So, that's an aspect that is important there.

So, going to move on to some of the key challenges here, and these are probably things that we've been alluding to but we wanted to highlight here, the materiality is really a critical component, because it flows throughout the entirety of the reporting, and the process and what management has put in place. There's an aspect here around what is the actual and what is the potential material impacts on risks here. So. That's an important component. It needs to have a structured process. It's not something that is easily put together and it's not a one size fits all. There are common elements and common material risks that will be within an industry per se, but it does need to have a specific support there.

The other aspect is having that reporting system in place. One of the things that I would like to highlight here is that a lot of current sustainable reports, CSR reports, ESG reports, where they're reporting on greenhouse gas emissions, a lot of those are issued in Q3 right now, calendar Q3. The SEC's reporting requirement is that the reporting on greenhouse gas emissions will need to be incorporated or aligned with the reporting of a company's second quarter, your 10-Q filing. So, that moves up the timeline by roughly three months, maybe even more. So, in order to meet that reporting deadline, because the other element here, especially when you're looking to get assurance over that information, you're going to have to need to have that information readily available, really probably the latter part of Q1, for the assurance provider to perform their work so that you can meet your Q2 filing.

So, having a robust reporting process, controls and supporting systems will be necessary to meet that. I guess, the last piece I'd want to highlight here is really the last one, and it was part of some of Leslie's overview. While we've seen a lot of consolidation in standards here, what we're now seeing, and I think it was one of the questions alluded to, really a fragmentation of regulation. It's important that companies be aware of really that high watermark that is going to be applicable to them. So, that's a really critical aspect.

One other thing that as I move into our takeaways here I wanted to mention is that, so we wanted to highlight for folks on the line here, depending on where they sit, either in a large accelerated filer, or accelerated filer, or smaller reporting companies, what they need to be cognizant of and what should they be doing now. But one of the really important components is that there are deadlines here and expectations for reporting and filings here, but as with many companies, if your organization is on the fence on any of these and shift back and forth between being an accelerated filer, or a large accelerated filer, or smaller reporting company, you need to be cognizant of when those shifts occur, and then suddenly are you needing to meet additional requirements here and maybe even in a more accelerated timeline, because there is not a consideration of a delay of implementation.

So, again, if you shift from a smaller reporting company to an accelerated filer, you're then going to have to meet those accelerated filer requirements in that year. And one of the key aspects is that the smaller reporting companies don't require greenhouse gas emissions reporting, so that's something that's important to keep on the radar here.

Also, the other element that for private companies... Obviously we've been speaking to around public companies here because it applies to public filers, but if you're a private company and you're looking to potentially go public through IPO or an acquisition by a public company, these things are another areas that need to be put into the considerations here.

So, the last piece that I wanted to just mention, I know Leslie was also talking about potential legal challenges, well, I'm not an attorney, I don't play one on TV, nor do I think I'm a court interpreter, but what I do mention to clients is that I don't have a crystal ball, but we know that these are on the table as requirements and the aspect around if those court proceedings fail or there isn't a delay, and if you're waiting for an output of that, and if the output is that these still stand, then you're further hurting and hampering your timeline for compliance. So, that would be the only thing that I would say is that be cognizant of what's the requirements out there now, the timelines that they fit into your organization schedules and then elements around if there's potential changes in your organization.

Those are the key components there that I would want to just stress. I know we're running up against time here. I think that we've all been just reiterating that this is not something that is just flipping the switch and turning on. There's a lot of things that will be needed to be implemented as well as... And once you kick the tires for the first time, there's likely things that you want to correct. So, having that ability to get into it and to dig into it sooner rather than later is important.

So, I believe looking at the queue for questions, we've addressed all of our questions. I guess, Lourenco, Leslie, is there any final comments on your side?

Leslie Wong:None from me. You can take it away.

Lourenco Miranda:No.

R. Charles Waring:Okay.

Well, again, appreciate everyone's time today. Feel free to reach out with any other questions and I'll turn it over to Bella to wrap us up.

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