The Real Cost of Climate Disclosure
When the SEC announced the Proposed Rule on climate-related disclosures in March, one of the first challenges from commenters was the cost of meeting the proposed requirements. While the SEC estimated first-year costs would be in the range of $530,000, others estimated it would be much greater.
A survey commissioned by Persefoni and Ceres and undertaken by ERM, the largest pure-play sustainability consultancy, through the SustainAbility Institute by ERM (together ‘ERM’) has revealed what organizations are currently spending to measure, manage, and disclose climate-related financial information. While these numbers represent a current and historical baseline, the cost of climate change disclosure will decline even further as more organizations move away from manual processes and leverage carbon accounting software.
The ERM survey found that, on average, corporate issuers are spending $533,000 annually on climate-related disclosure activities, while institutional investors are spending an average of $1,372,000 annually to acquire and analyze climate data to inform their investment decisions. These results are based on survey responses from 39 corporate issuers and 35 institutional investors.
To dive deeper into the details on the cost findings, the full study and a condensed fact sheet are now available.
Carbon Accounting Platforms Reduce Complexity
With these numbers in hand, it is reassuring to know that software will reduce the expense and complexity of complying with the SEC and other climate disclosure requirements.
Given these regulations, it is critical that organizations are as confident in their carbon accounting as they are in their financials. Technology provides the opportunity to save money and time in this process and enhances the reliability and traceability of company reporting. That can increase investor confidence and reduce your litigation risk.
Software is more reliable, more consistent, and less costly than human labor
Software simplifies otherwise complex carbon accounting processes and allows for greater accuracy of reporting and greater utility of data to company management and investors
Software facilitates and reduces the cost of auditing GHG emissions data by providing a full audit trail of the carbon accounting process and the inputs that contribute to a company’s carbon footprint
When asked about the greatest benefits or value firms expect to see from financial technology in the next year, firms responding to a Thomson Reuters survey on fintech and regtech reported that improved efficiency, greater transparency in decision-making and cost reductions were the highest priority. The same benefits can be derived from Carbon Management and Accounting Platforms (CMAPs)
Benefits Outweigh the Costs
Research shows that the potential cost of non-compliance and misleading disclosures far exceeds the cost of compliance. Reduce this risk by harnessing reliable software.
In order to comply with the impending SEC rules, as well as those emerging in states such as California and jurisdictions such as the EU, companies must apply appropriate rigor to their carbon accounting. Technology solutions can facilitate disclosure and help demonstrate compliance.
The cost of non-compliance can far exceed the cost of compliance; for example, in January 2021, Toyota was fined $180 million for inaccurately reporting the tailpipe emissions of the vehicles it sells.
Also in 2021, Amazon was fined 746 million Euros and WhatsApp was fined 225 million Euros for violating the General Data Privacy Regulation (GDPR).
On the other hand, companies face sizable opportunities for investing in GDPR compliance. Most organizations are seeing very positive returns on their privacy investments. According to Cisco’s 2020 study, more than 40% of respondents are seeing benefits at least twice that of their privacy spend. For every $1 of privacy investments, the average company received $2.70 of benefit. Across all companies in the survey, the average estimated benefit was $2.7 million.
A Shift in Climate Strategy
We’re now seeing a fundamental shift in how companies prioritize their climate strategy- and the transition is ripe with opportunity.
The total ROI of a sustainability program over a five-year period, according to Forrester’s TEI framework, is 33%. The compliance benefits alone amount to $370k over a five-year period, “Our model assumes a risk-adjusted, conservative annual compliance benefit of $180,000 from year three onward, amounting to a present value of nearly $370,000 over five years.” Leading technology consultant Forrester measures the ROI of sustainability strategies using its Total Economic Impact methodology. “Sustainability is synonymous with optimization and innovation. Optimization is often a product of all sustainability efforts. This leads to indisputable business value. Returns from investments in sustainability come from both internal drivers as well as external factors.”
A meta-study conducted by the NYU Stern Center for Sustainable Business found a positive correlation between ESG performance and stock performance, operational efficiency, and reduced cost of capital. The study looked at over 1,000 studies published between 2015 and 2020.
For further insight into the costs and benefits of climate-related disclosure, check out Persefoni's Sustainability Advisory Board member Robert Eccles' article in Forbes.
Hear directly from the experts
Click here to register and receive a recording of last week’s webinar: “Understanding the cost implications of the SEC’s proposed climate-related disclosure rule.” Experts from Persefoni, Ceres, and ERM - the study authors, discuss the findings of the study, policy implications and what we all can expect moving forward.
The Persefoni platform enables you to confidently calculate your organization’s carbon footprint to assemble a complete greenhouse gas inventory across Scope 1, 2, and 3—best of all it’s built on the Greenhouse Gas Protocol - the accounting standard referenced by the SEC. Each calculation is recorded in a transparent ledger for audit and assurance.
Together with partners like Workiva, Bain & Co, and CGI, as well as counsel from our unrivaled Sustainability Advisory Board (SAB) of global industry experts, Persefoni ensures organizations are fully enabled to comply with the growing expectations of international regulators and investors. For example, we’ve partnered with Workiva, the market-leading software platform for SEC financial filings, to provide an end-to-end solution simplifying SEC forms with a single cloud solution. This partnership helps clients integrate their carbon and financial disclosures into a single SEC filing.
The first step of initiating the carbon accounting journey might seem simple and straightforward but for a new company just getting started, it is overwhelming, daunting, and time-consuming. To help alleviate any stress this step might cause, we are excited to announce the general availability of Persefoni’s Footprint Workbook - a vital tool that facilitates accuracy, transparency, and simplicity for climate accounting.
© 2022 Persefoni AI Inc. All rights reserved. This presentation is the exclusive property of Persefoni and may not be copied or distributed, in whole or in part, without the express permission of Persefoni.
Persefoni is a leading Climate Management & Accounting Platform (CMAP). The company’s Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users with a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.