SMEs, the time is now!
The United States and Canada are on the brink of imposing mandatory climate-related disclosure standards. The extended regulatory timelines may have fostered a false sense of security among many of you. However, rest assured, this false sense of security is deceptive.
During this lull, numerous companies have started the hard work of distinguishing themselves from their competitors, crafting strategies to draw more investors, consumers, and the capital needed to fuel their growth. If you haven't started preparing for this pivotal transition, begin now, as these changes are inevitable.
Canada - Take Advantage
Grant Vingoe, CEO of the Ontario Securities Commission (OSC) said in a letter shared by the Institute of Corporate Governance (ICD) that, "Boards should take advantage of this transitional period to prepare. Establishing governance and risk management frameworks to confront material climate-related risks will serve to position companies favorably for meeting the evolving information needs of investors."
The OSC also shared that the Canadian Securities Administrators (CSA) has endorsed the International Sustainability Standards Board (ISSB) standards, which have already integrated the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) earlier this year, with adjustments expected to suit the Canadian context.
Vingoe specifically addressed SMEs, acknowledging that "while the disclosure of material climate change-related risks is vital for investors to make informed decisions, it can pose challenges for all public companies, particularly for smaller ones with fewer resources." The organization has lobbied for the standards to exhibit "proportionality and scalability" to ensure their applicability across diverse markets, industries, and company sizes - particularly for Canada's burgeoning early-growth public companies.
United States – Sooner than later
Gary Gensler, Chair of the Securities and Exchange Commission (SEC) suggested recently that further delays may occur, but the final United States' rule titled "The Enhancement and Standardization of Climate-Related Disclosures for Investors" is anticipated in early 2024.
The SEC's proposal also outlines a phase-in period and specific accommodations, such as for scope 3 emissions and companies classified as smaller reporting companies. The compliance dates for the disclosure of financial statement metrics and the audit compliance dates may be bumped by a year if the rule is signed in 2024, but the current proposal lists the reporting dates as follows:
Large Accelerated Filers will report in fiscal year 2023 (to be filed in 2024) and must comply with audit requirements in fiscal year 2024 (to be filed in 2025), with the same date applying for disclosure compliance.
Accelerated Filers and Non-Accelerated Filers will report in fiscal year 2024 (to be filed in 2025) and audit in fiscal year 2025 (to be filed in 2026).
Smaller Reporting Companies (SRCs) will report in fiscal year 2025 (to be filed in 2026), with exemptions applied.
Even with a year delay, it doesn’t give companies much time to embed ESG and Sustainability processes and procedures into their business purpose, to gather data on performance, and prepare the reports expected of them by regulators, or the publicly listed companies in their supply chain.
The wise move would be to begin evaluating your company’s risks, establishing robust governance structures, and aligning with international frameworks, such as the ISSB. Don’t wait for the final regulations to be published; the time to act is now. Make this transition your competitive advantage and set the standard for others in your industry to follow.
