Filed under: Audit & Assurance

January 1, 2023

A recent SEC proposal, along with strong interest from enterprise companies, is resulting in many privately held companies calculating and reporting their greenhouse gas (GHG) emissions to major customers. With the pressure to mitigate the effect of GHG emissions on climate change, many large enterprises have reported their GHG emissions for more than a decade. Thus far, while many small and midsized businesses (SMBs) have taken an interest in the topic, it has not been required to perform detailed GHG calculations or analyses.

However, in March 2022, the SEC proposed publicly traded companies report their GHG emissions and risks related to climate change. The disclosure roadmap proposed by the SEC includes adding this information into each company’s audited financial statements, with the disclosures and internal controls related to collecting the information subject to scrutiny by the Company’s auditors.

A significant element of this proposed roadmap, which will be called Scope 3, is the requirement for publicly held companies to report the GHG numbers from their supply chain. Scope 3 will have a direct impact on privately held SMBs, though the GHG emissions may be indirectly generated. The SEC rule is still in the proposal phase so there could be changes, but it would be best that SMBs begin thinking about and preparing for a course of action.

Well before the SEC’s movement in this area, several larger enterprise companies had sent requests to their suppliers, vendors, and contractors for greenhouse gas emissions information, and some are now requiring independent verification of these results. The affected suppliers are largely SMBs. Thus, to keep the contracts with these enterprise customers, the SMBs are being asked to have their GHG numbers verified and submitted in 2023.

To prepare for these major customer requests, affected SMBs should identify their own internal resources to calculate their GHG emissions, as well as an external firm which will perform the verification. The identified firm should be available along the process to address questions and issues as they arise.

Clark Nuber can help your company meet the third-party verification requirements requested by larger enterprise companies. Contact us to start a conversation about your GHG needs.

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