Tuesday, November 29, 2022

How the SEC’s ESG Rules Impact Chief Information Officers

By Swapnil Mishra - April 21, 2022 4 mins read

CIOs are instrumental in implementing corporate ESG policies as they are uniquely qualified to define their companies’ goals and put them into action.

The Securities and Exchange Commission (SEC) of the United States proposed a ground-breaking rule on climate risk. If the rule is approved, businesses will be required to disclose   a broad overview of their environmental impacts and specific climate risk and greenhouse gas emissions data – in annual reports and other required filings.

While companies have historically disclosed environmental, social, and governance data to investors to demonstrate their sustainability, these disclosures are voluntary.  

The SEC proposal

The SEC’s proposal established a clear choice: decarbonize now and reap the benefits, or wait for regulators to take action.

Companies grappling with the fallout from Corona virus, inflation, and supply chain disruptions are scrambling to meet the renewed urgency of sustainability mandates. Amid this uncertainty, an unlikely figure from the C-suite has emerged as critical to these efforts: the CIO. CIOs gained new prominence during the pandemic, as entire organizations went online—in some cases, overnight. As a result, information technology now underpins nearly all lines of business and has become one of the fastest-growing energy consumers. Whether by chance or design, CIOs are now at a crossroads in terms of developing and implementing ESG strategies—or risk being caught in the crossfire if they do not.

The proposed rules would require registrants to disclose information about climate-related risks that are reasonably likely to materially affect their business, results of operations, or financial condition.

How the SEC proposal will affect businesses

After the proposed SEC rule takes effect, businesses would be required to disclose the potential impact of climate change on their operations and strategy and their risk management strategy.

Also Read: Open-Source Technology: Four Trends for CIOs to Capitalize on

Additionally, businesses would be required to disclose information about their direct greenhouse gas emissions from sources owned and controlled by the business, referred to as Scope 1 emissions. CIOs will also be required to give information about indirect greenhouse gas emissions from purchased energy sources such as electricity and natural gas, referred to as Scope 2 emissions.

A widespread effect

According to experts, the CIO’s evolving role may not be limited to the “E” in ESG. They should also be in a position to identify methods for quantifying social indicators such as wage rates, safety records, the presence of vulnerable migrant workers, and the status of other marginalized groups within a corporation and/or its suppliers. These metrics could be tracked over time to determine risk and scale changes. 

Driving internal change

CIOs must seize opportunities to establish and achieve ESG targets within their immediate remits. They should work on initiatives such as increasing the proportion of renewable energy sources used in data centers or adopting a circular life cycle approach to hardware and service procurement.

They could also convene with their peers in sourcing and procurement to clearly define criteria for their own decisions’ greenhouse gas emissions, material impact, and supply chain risks. Additionally, CIOs can ensure that digital systems – including artificial intelligence and machine learning – are not based on racist or gender-biased assumptions.

Excel spread sheets will no longer suffice in the future

Today, many businesses lack the systems necessary to generate the data that investors and – increasingly – regulators require. Unbelievably, a large number of businesses manage their data using spread sheets. If approved, the SEC rule will compel companies to adopt new sophisticated systems that collect and analyze data to inform real-time decision-making and compliance with regulations. There is a discernible difference. 

This is a discussion that is not happening nearly as much as it should. Perhaps it’s time for CIOs to give it a serious thought.

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Swapnil Mishra

Swapnil Mishra is a Business News Reporter with OnDot Media. She is a journalism graduate with 5+ years of experience in journalism and mass communication. Previously Swapnil has worked with media outlets like NewsX, MSN, and News24.

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