This post was authored by Clarity AI, a leading sustainability data science and technology company and a Sentieo partner.

The recent move by the Securities and Exchange Commission to require disclosures of climate-related risks, including greenhouse gas emissions, is a positive step towards a more sustainable world. The announcement by the world’s largest economy came years after their European counterparts. The draft rule will disclose companies’ direct and indirect greenhouse gas emissions, otherwise known as Scope 1 and Scope 2 emissions. In a somewhat surprising but reassuring move, the proposal also indicates that firms will need to disclose, eventually, greenhouse gas emissions generated by suppliers and partners, known as Scope 3.

“At Clarity AI, we believe there is no pathway to net zero without fully incorporating Scope 3 emissions into regulation and reporting standards. And even then, regulation will only take us so far. Technology allows investors to access robust and transparent Scope 3 emission data at scale, which will be critical to check the reliability of the reported data and to start to understand the key drivers of those emissions. Deep granularity and full transparency will be needed for investors to manage their paths to decarbonization, while also keeping companies “on track” to meet the Paris targets,” our Head of Product Research and Innovation, Patricia Pina, said. To gain a better understanding of the challenges and opportunities surrounding Scope 3, Clarity AI has published a recent article on the topic, Why Have Scope 3 emissions data has become essential. 

Although the SEC regulation looks like a promising step there are a lot of details to iron out in the coming months and years. While we wait for additional details, it may be helpful to look to our neighbors across the pond to see where they encountered challenges on their sustainability journey.

The EU has dealt with a variety of challenges in implementing their various regulations; a couple include:

• Establishing clear definitions – Many of the EU regulations included content that was ambiguous and open to interpretation which could lead to different implementations of the regulation.
• Providing realistic timelines – The implementation timelines for SFDR and EU Taxonomy have been incredibly tight and due to the lack of internal resources, teams have struggled to meet the deadlines, causing overall delays in the process.

Regardless of regulatory challenges, the EU and UK are making progress. This all comes with a backdrop of rising demand for ESG investment products, so much so that it is becoming table stakes to have ESG offerings available.

The increased demand for ESG products has also increased the need for ESG-related resources. The demand is being seen across a variety of stakeholders, from in-house ESG teams to IR officers, to ESG consultants and many more. To meet these needs Sentieo has responded with ESG-specific dashboards and synonym groups, as well as integrating content and data with providers like Clarity AI. To further assist clients, Sentieo published a recent guide, 33 Accelerating ESG Trends, outlining ESG themes in proxy statements that are highlighted both at the broad and granular levels. 

Rising demand for ESG products and increasing regulatory initiatives are all a signal that sustainability interest is here to stay. If the volume of Google searches is any indication of interest, searches for Scope 3 recently hit a near all-time high. Now it’s a waiting game to see what comes next on the United States’ sustainability journey. 

Worldwide Google Trends: “Scope 3” Searches – 5-years Ending 4/9/2022.