Contruent Blog

How EPCs Will Be Affected by Proposed SEC Climate Risk Disclosure Rule


The U.S. Securities and Exchange Commission (SEC) has proposed a new climate rule in which publicly traded companies would have to report on climate-related risks in their risk management plans and reports.

Publicly traded EPCs and companies would have to report on how climate change is affecting their organization by providing climate-related information when they register as public companies with the SEC and in annual filings.

A press release from the SEC on March 21, 2022, stated that publicly traded companies’ registration statements and periodic reports would need to include “information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements. The required information about climate-related risks also would include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks.”

Other metrics would include the costs of moving towards renewable energy sources, as well as the risks related to the physical impact of storms, drought, and higher temperatures caused by global warming. 

The proposed rule changes would require companies registered under the SEC to disclose information about: 

  1. A company’s governance of climate-related risks and relevant risk management processes; 
  2. How any climate-related risks identified by the company have had (or are likely to have) a material impact on its business and consolidated financial statements, which may manifest over the short-, medium-, or long-term;
  3. How any identified climate-related risks have affected or are likely to affect their strategy, business model, and outlook; and
  4. The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of their consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

SEC Proposed Climate Risk Scopes

The rule outlines three different climate risk scopes and their reporting requirements:

  • Scope 1: Disclose information on direct greenhouse gas (GHG) emissions.
  • Scope 2: Disclose information on indirect emissions from purchased electricity or other forms of energy.
  • Scope 3: Disclose information on GHG emissions from upstream and downstream activities in its value chain, if material or if the registrant has set a GHG emissions target or goal that includes Scope 3 emissions. 

Scope 3 has received push back from companies and trade groups, including the U.S. Chamber of Commerce, who argue that it is too burdensome and complicated to estimate emissions generated by a company’s suppliers and customers, and across its operations.

The SEC says it would put the responsibility and duty on companies to determine whether their Scope 3 emissions are “material” in terms of whether or not this data would be an important factor for an investor to know.

The SEC and investors would be able to challenge a company’s assessment of what counts as material information, meanwhile smaller companies would be exempt from reporting their Scope 3 emissions.

The public will have until May 20, 2022, to weigh in on the SEC’s proposed rules.

Slowing Climate Change

The SEC proposed rule stems from a government-wide effort to identify climate risks and slow climate change. President Joe Biden has set a target to cut GHG emissions in the United States by as much as 52 percent below 2005 levels by 2030. He also has stated he expects to adopt a clean-energy standard that would make power produced by electricity carbon-free by 2035, along with the wider goal of net-zero carbon emissions through the economy by 2050.

Many nations agreed in the 2015 Paris Agreement to reach net zero goals by 2050.

How Can EPCs and Project Orgs Estimate and Track Cost & Carbon?

ARES PRISM Cost & Carbon in-a-box is an effective project estimation and tracking tool. With mandates and regulations in place or proposed in many parts of the world, project organizations need to be measuring their projects’ costs and carbon. ARES PRISM Software is capable of estimating and tracking on all three SEC scopes, making project estimates transparent and simple to maintain from their initial concept through to the project’s life cost and carbon operating values.

As a cost and carbon tool, ARES PRISM produces estimates for capital construction and carbon values, as well as whole-life estimates for design, operations and maintenance, decommissions, and sequestration. Its integration allows for aligning data, extracting vital asset information, and reporting on cost and carbon estimates that are automatically updated as more data is received. 

This capability improves users’ understanding of the cost and carbon impacts for their capital projects, enabling them to mitigate carbon impacts and the budgetary costs associated with carbon avoidance. By providing one place where users can trade off cost and carbon, tools like this help maximize the likelihood of project management success while ensuring project sustainability success.

Since 2013, all large companies in the United Kingdom have been required to report on how they integrate sustainability into their business strategies. As a leading project software used across the globe, ARES PRISM began enhancing our software in 2020 to feature built-in carbon rates aligned with BCIS and CESMM4.

Now this dataset is fully tailorable to accommodate whole lifecycle carbon within the project controls software. The solution can easily align and integrate with many systems and has elemental assemblies built-in to fully align with BIM models. 

As such, users are able to generate and manage project and program cost and carbon estimates that support the capture of government and commercial contracts. PRISM Software can deliver cost and carbon as an integrated, transparent estimate providing robust and reliable evidence of expected cost and carbon outturn values, in addition to performing earned value management (EVM) and collecting cost and carbon actuals as an integrated part of the period end process.

ARES PRISM Software is able to accept project scope information from BIM, deliver cost and carbon estimates onwards into the supply chain, and ultimately update the data warehouse from actuals received from delivery partners and third-party contractors and vendors.

This approach allows for project cost actuals and project carbon actuals to benchmark projects against past and future projects, informing organizations of future project estimates using not only their own historical data, but also industry standards and data to enable them to become more sustainable. 

Learn how cost and carbon estimating and tracking with ARES PRISM Software can help meet carbon net zero goals while conforming to local regulations and potential mandates.