Why energy and utilities should tackle the most complex aspects of the SEC climate rules first
The SEC’s proposed climate disclosure rules could be uniquely challenging for energy and utilities because of the industry’s complexity and massive footprint. On the flip side, solving for these complexities as you move toward investor-grade climate and emissions reporting could spark giant leaps forward in your company’s cleaner energy transition.
That’s because getting from where your data, processes and systems stand today to where you’ll likely need to be under the proposed new rules could lead to answering questions that are top of mind for management, boards and other stakeholders. Is our proposed path toward net zero achievable and measurable? What breakthrough technologies are needed to support our decarbonization efforts? How much will a cleaner and more reliable future cost… really?
Your next steps as you prepare
If you’re approaching the SEC climate disclosures with the right mindset, you’re not waiting on the final rules to begin thinking about what needs to happen and how to get there. We know many of you fall in this camp, with a majority (75%) of energy and utilities executives who responded to our PwC Pulse Survey naming SEC disclosures as one of the top policy areas where you’re actively taking action or closely monitoring. In an earlier report, we shared important considerations companies should check as they prepare for the new requirements. But due to the far-reaching nature of the implications, many energy and utility companies may need to prioritize even further. We suggest concentrating on these harder-to-solve aspects of the SEC proposal early in your preparation as they will likely require the most attention and effort across your organization.
Focus on the harder aspects of the climate rules first
- Energy transition
- Capital investments
- Scope 3 implications
- Joint ventures and M&A
- ZIP Code-level data
Energy transition
Telling a transition story you can stand behind
If your company has a long history of producing corporate sustainability reports or meeting other regulatory or reporting requirements, you might be lulled into a false sense of comfort about the new requirements. Don’t be. There are significant differences between historical reporting and the rigor expected to be mandated by the SEC. It’s no longer enough to present a snapshot of where you are now or even where you want to go next. Providing the details of your net zero or carbon reduction commitments, including the associated risks and financial impacts, in a manner aligned with Regulation S-K and related Regulation S-X rules will require focus across the enterprise. Additionally, it could be necessary to make critical assumptions regarding certain technologies, as some may not yet be fully proven or available at the scale needed to meet the expectations needed under current decarbonization commitments. Timing will also be a factor to consider, with ESG and sustainability reporting now likely in the same timeline as your financial reporting.
Your top-of-mind questions
- What will it take to retrieve the appropriate data or achieve the level of rigor that will now be required?
- Do you have a realistic understanding of the resources required to develop and implement processes to record, track and verify information?
- Will estimates based on Q4 data be sufficient?
Getting ahead of the challenges
- Embed tech-enabled reporting in today’s current ways of working to streamline reporting and get insights faster.
- Select tools and technology for non-financial data with the same rigor as your financial reporting.
- Consider using a carbon ledger as your trusted source of truth, providing more visibility and management of climate data.
Capital investments
Routine resiliency and modernization efforts versus climate-related impacts
Energy and utility companies continually make investments in infrastructure, enhancing asset resilience and operational reliability, so you may have difficulty distinguishing between routine costs and the types of climate-related disclosures expected under the SEC proposal. From the perspective of capital investments, for example, you might need to understand the cost differences between a wood pole versus a hardened pole, underground improvements versus above ground and other modernization efforts.
Your top-of-mind questions
- How should we define severe weather events and transition risks, and track the financial impacts?
- What needs to be included in the financial footnotes using the “bright line” 1% threshold?
Getting ahead of the challenges
- Conduct a trend analysis of impacts, financial and otherwise, including those related to frequency of outages and costs.
- Engage in scenario planning to assess the resilience of your business strategy. See how PwC conducted its own scenario planning.
- If scenario planning already exists, begin to further define the scenarios, parameters and assumptions made as well as projected impacts.
Scope 3 implications
Likelihood that Scope 3 will be material for the industry
Under the proposal, companies will be required to disclose emissions from upstream and downstream activities indirectly connected to their assets (Scope 3), if material, or if greenhouse gas (GHG) targets or goals include Scope 3 emissions. Scope 3 will likely be material for energy and utilities regardless of decarbonization commitments in industry-specific high-emitting categories such as “fuel and energy-related activities” and “use of sold products.” Other Scope 3 categories could also be material for these companies.
Your top-of-mind questions
- How should we gather information from private vendors?
- Do they already maintain the information that we’ll need?
- Can we eventually expect verification over scope 3, and what do we need to do to prepare?
Getting ahead of the challenges
- Begin evaluating and analyzing all 15 categories, not just category 11 (product sold).
- Look for breakthrough technologies that can enhance data quality, including the frequently unstructured data coming from the field.
- Start tracking and conducting an inventory of activities, defining boundaries for minerals, solar and other materials to understand where they originate.
- Evaluate your value chain’s Scope 3 emissions holistically from a consolidated perspective to avoid double counting across lines of business.
Joint ventures and M&A
Complexity created by joint ventures and M&A activity
The lines continue to blur among traditional companies, emerging players and other sectors seeking opportunities to work with energy and utilities as they pursue their own cleaner energy goals. The continued strong deal activity across energy and utilities—as well as amount of leased and shared assets, power purchase agreements and other joint ventures—may create some unique climate disclosure challenges for energy and utilities companies.
Your top-of-mind questions
- If we don’t operate a given asset, how will we retrieve data from others?
- Will we need to supply data to others?
Getting ahead of the challenges
- Review underlying joint operating agreements, and consider the need for potential contact amendments.
- Evaluate system integration efforts through the lens of the proposed SEC requirements.
ZIP Code-level data
Challenges providing reliable, ZIP Code-level data
Companies with pipelines, transmission lines, drilling rigs, offshore wind turbines and other complex assets may face challenges in providing accurate, reliable data down to the ZIP Code level. Expanded disclosures—beyond the industry’s already extensive reporting requirements—and an accelerated timeline for sustainability reporting will likely require companies to increase their investments and enhance existing processes and systems.
Your top-of-mind questions
- Which processes and procedures will be required to examine our cross-boundary or offshore assets at the ZIP Code level?
- How can we provide ZIP Code-level data for offshore wind and offshore drilling?
- Will we create security risks by disclosing the locations of critical assets?
Getting ahead of the challenges
- Understand what assets you track today and how you track them.
- Evaluate what you need your asset management system to be able to track in the future.
- Conduct a climate risk assessment at the asset level.
Energy and utilities can lead the way together
For many of these harder-to-solve aspects of the SEC proposal, it will also be important for energy and utility companies to work together to establish an aligned approach across the industry, enabling comparability and consistency.
The industry has rallied when faced with challenges like these—from creating technologies that can capture carbon to mounting massive efforts to restore power in the wake of extreme weather. Taking that same all-hands-on-deck approach to increased climate disclosure requirements can be the key to your company’s success, while helping the industry lead the path forward.
Related content
Follow us
