Challenges and Solutions to Meeting SEC Climate-Risk Disclosure Rules

by Tony Liou, Partner Energy President

With the new SEC rules, climate-risk assessments and property resilience would become standard practice in CRE.

On March 21, the U.S. Securities and Exchange Commission (SEC) finally released its proposed rules to require publicly traded companies to disclose their climate-related risks to investors. The rules include not only reporting of material and financial risks, but will also require disclosures on greenhouse gas (GHG) emissions. While some companies are already disclosing this information as part of their ESG programs, this SEC rule would standardize the practice.

Among other things, the proposed rules would require reporting on:

  • Climate-related risks and their material impacts on the business. For the CRE industry, this means identifying physical risks to the individual assets, such as potential flooding, fire hazards, etc., and how they impact the assets.
  • Processes and plans to manage climate-related risks. Related to this is the oversight and governance of climate-related risks. After identifying potential risks to the properties, there must be a plan to address those risks, such as identifying property resilience measures and implementing them.
  • GHG emissions and reduction goals. This means collecting data and benchmarking emissions to show changes year-over-year. For those with reduction goals, the rules require companies to indicate their plans and progress toward carbon reduction.

The proposed rules would impact everything from operations, underwriting, due diligence, acquisition, investment committee decisions, all the way to disposition. Property owners and managers, as well as developers, should evaluate climate-related risks to their assets and implement resilience measures sooner than later if they want to stay ahead and be able to meet the asks of investors and lenders if and when the rules go into effect.

While GHG emissions benchmarking and assessing climate-related risks aren’t entirely new in CRE, the SEC rules still pose certain challenges for companies looking to meet them.

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