Panelists debunk ESG ‘myths’ surrounding new SEC climate rule

Ahead of the Securities and Exchange Commission moving forward with new Climate Change Disclosure Rules, experts at multinational accounting firm KPMG addressed and debunked four “myths” they said have started surfacing in the US insurance industry.

The SEC’s March 6 climate rule proposes new regulations such as requiring specific financial statement disclosures, Scope 3 greenhouse gas emissions disclosures and climate risk disclosures, among others. For the time being, however, the rule has been voluntarily stayed.

Sean Vicente, office managing partner, audit, KPMG, said the expectation is largely that ESG practices in insurance will evolve as the new rules are adopted, and firms are already beginning to digest the proposed changes and reorganizing accordingly.

“We’re starting to see it evolve from small but mighty sustainability or ESG teams that sit in these big organizations and are responsible for putting together those reports or working with marketing, but still sort of own spreadsheets and things like that, all the way to what we would say is best in class,” Vicente said.

In the process, KPMG noticed four misconceptions arising about the new ruling and what it means for ESG practices, which they aimed to address in a webinar:

1. The approach to materiality won’t change
2. Firms don’t have to worry about Scope 3
3. ESG is only a cost and compliance center
4. In-house sustainability offices will own ESG

“Here are the conversations we’re having and some of the areas of interest,” he said.

Myth 1: Materiality won’t change

The issue of materiality and its definition was discussed at length during the webinar. Panelists acknowledged that the definition of materiality has not changed but said some “nuance” should be expected.

“No, the SEC hasn’t changed its definition of materiality, but yes, there are going to be some interesting conversations to be had around what you’re disclosing publicly and why,” Vicente said.

For example, he said questions may arise around why it’s important that some disclosures are in the public domain if they’re not material.

“We do think there’s some nuance to that, and it’ll be something that you’ll want to document and have policy around and all those important things.”

Myth 2: Scope 3 won’t matter

KPMG experts on the webinar suggested Scope 3 will not be ignored, but that the way people think about these disclosures will evolve in a way that will be “interesting to watch.”

“As to Scope 3, we’ll see what happens there,” he said. “We believe that, as things evolve and that information starts to become available from other companies, that the industry is going to follow suit.”

However, he emphasized that the industry is expected to “find its way” over time rather than all at once.

“We don’t think there’s going to be any sort of immediate jump to a Scope 3 disclosure,” he said.

Myth 3: ESG will only be cost, compliance center

While some firms may have treated ESG as merely a regulatory checkbox rather than a sincere effort, this cannot continue to be the case as customers are paying an increasing amount of attention to climate change policies.

“Companies, particularly your customers, they really are thinking about some of these things differently, particularly as we saw some of the impacts of COVID on supply chains, where weather can have the same impacts on supply chains,” Vicente said.

KPMG panelists noted how companies can use this to their competitive advantage and build capacity.

“It’d be interesting to see how your customers are changing and evolving,” Vicente added.

Myth 4: Sustainability owns ESG

As ESG policies and approaches develop, it’s expected to branch out beyond dedicated Sustainability Offices within companies, according to KPMG’s experts.

They noted that ESG programs will benefit from a more integrated approach across front and back offices to address varied risks, opportunities and requirements.

“I think, more and more, we’re going to see sustainability be the subject matter expert, but we really believe that the finance function, the audit functions in businesses are going to have to participate in that process,” Vicente said.

For instance, in-house teams may begin embedding ESG responsibilities across the organization, such as connectivity with internal auditing, SOX and IT teams, he noted.

According to data from a KPMG Insurance ESG survey, “79% of responses seemed to skew towards that belief that we’re really moving towards more of an embedded model in terms of how we’re organized and where ESG sits in an organization.”

According to that same survey, 21% of insurance leaders said potential restructuring depends on changes in ESG regulations and market demand.

“So, really, there’s an evolution that’s going to happen,” Vicente said.

KPMG is a global firm offering audit, tax and advisory services in more than 143 countries. It employs more than 270,000 people and serves the needs of the public sector, private sector and NPOs.

Rayne Morgan is a Content Marketing Manager with PolicyAdvisor.com and a freelance journalist and copywriter.

© Entire contents copyright 2024 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.