The sun is shining.
The wind is blowing.
Climate Disclosures are coming.
The U.S. Securities and Exchange Commission (SEC) is expected to finalize its SEC Climate Disclosure Rule later this year – public businesses will soon be expected to disclose a litany of climate-related information ranging from greenhouse gas emissions to climate risks to energy transition plans.
It is a new era of sustainability in business, and businesses (both public and private) must be ready to adapt.
Sustainability Evolves Into Opportunity
“Sustainability in business” did not used to exist – the concept first emerged in the 1940s under the “corporate social responsibility” banner and mostly applied to how businesses would give back to society with little consideration to environmental sustainability. Along the way, sustainability was espoused only by a small minority of green-minded businesses (like Whole Foods) and was rarely part of the corporate decision tree. It took until the 1990s for modern “sustainability” to emerge. Although businesses like McDonald’s did away with plastics and switched to cardboard, decisions were still driven mostly by economics.
Today’s businesses still make decisions based on economics, but more than any other time in history, businesses incorporate sustainability and virtues in their decision-making. Customers prioritize it, and workers value it.
The key difference is that, historically, sustainability was a cost-bearing endeavor, but today, there is a fast-growing suite of sustainable solutions that are economically superior AND better for the environment.
One of those options is solar – now the cheapest source of electricity in the United States, solar will make up nearly 50% of all utility-scale generating capacity added in 2023 (fossil fuel plants will make up just 16%).
Now, how businesses choose to power their operations is more than a virtue consideration – it’s a financial consideration as well.
Capturing and Reporting Progress
As the SEC’s Climate Disclosure Rule codifies a transition well underway, all businesses both public and private must be ready to face a future where sustainability reporting is a key part of operations. Solar has a big – if not the biggest – part to play.
Once approved, listed companies would have to disclose climate-related risks that are likely to have a material impact on the business and how they are expected to impact the company’s strategy and outlook.
Companies would also need to outline their climate risk management strategy, targets, and goals, including information on the company’s greenhouse gas emissions across Scopes 1, 2, and 3.
Ahead of the SEC officially releasing its guidelines, we’re sharing the top three ways we’re seeing SolarKal customers report on solar and sustainability: TCFD, GRI, and SASB.
- Task Force on Climate-Related Financial Disclosures (TCFD):
- The TCFD was established by the Financial Stability Board (an international body that makes recommendations about the global financial system) to develop voluntary climate-related financial disclosures. The objective of TCFD’s standards is to foster the transparency and consistency of climate reporting across organizations and financial markets.
- Reporting under TCFD first requires organizations to reflect on the different climate-related risks and opportunities. Using this as a base, organizations then build their climate strategy with measurable targets and metrics.
- There are recommendations and guidelines of what to report under each, however these standards are still quite high level and involve descriptive more than quantitative reporting.
- Using solar for an organization’s energy needs can be a key climate opportunity and form part of the ESG strategy. Solar energy is 100% renewable, and solar installations can make the property value increase, both of which are climate opportunities. Organizations can report on their solar goals in terms of MW capacity they aim to install and earn credit for green generation every year.
- Global Reporting Initiative (GRI):
- The GRI guidelines are among the oldest – first published in 1999 – and are the most widely used reporting standard in the world. The GRI guidelines are a framework of standards to help organizations report on their impact across the environment, people, and the economy. Compared to the TCFD, GRI standards are much more detailed. They require reporting on multiple specific metrics for each area of disclosure, with a focus on quantitative disclosures.
- Most organizations include key elements required by GRI in their ESG reports. For example, GRI’s Energy section GRI 302 requires organizations to report on energy consumed by source, energy intensity ratios and reduction in energy consumed. Organizations can report a breakdown of energy consumed across their operations and the share that comes from renewable sources like solar. Solar energy initiatives form part of quantitative tables as a reduction of an organization’s emissions by scope and as part of their renewable energy initiatives.
- Sustainability Accounting Standards Board (SASB):
- Launched in 2018, the SASB standards are among the newest and fastest- growing standards.
- A shared initiative by the International Sustainability Standards Board (ISSB) of the IFRS Foundation, the SASB standards aim to identify key, financially-relevant sustainability standards for each organization. The standards are organized by industry, and, like the GRI, SASB standards require detailed disclosures by topic.
- As with the GRI, companies using SASB can report their progress on solar installations as a financially beneficial investment to take advantage of a climate opportunity.
All the above sets of standards have their specific purposes and can be used in conjunction with one another. An example of an ESG report covering all three reporting standards is Federal Realty Investment Trust’s most recent ESG report. This report features a detailed analysis of climate risks and identification of climate opportunities in line with TCFD. Using this as a base, they explore key elements that form part of their ESG policy and strategy. They include a detailed section on their emissions by scope, analyzing the sources of emissions and the measured values. Finally, they include detailed quantitative reporting of relevant ESG metrics as laid out by GRI and SASB.
Quarterly Quick Hits
- The Treasury Department released its initial guidance on elective pay and tax credit transferability for the Inflation Reduction Act. Some of the more interesting tidbits: 1. Registration process will launch late 2023. 2. For-profit orgs can transfer tax credits and direct pay is available for 501c organizations! 3. Cash proceeds from the sale of credits are tax-exempt, although entities must file a tax return to get elective payments.
- New Jersey is proposing legislation that would increase Community Solar program capacity to 500MW.
- Maryland community solar is going to take a while. On a recent working group call, timelines were outlined for an official implementation on Jan 1, 2025. On the bright side, Maryland passed HB1188 enacting virtual net metering!
- Maine is in a state of flux – Net energy billing is under fire as the state creates a new solar program – the new Distributed Solar and Energy Storage Program, the successor to the existing Net Energy Billing program.
What I’m Looking Out For
- Illinois Community-Driven Community Solar final results
- California is expecting to have its Community Solar rules by August
- A marketplace for tax credit transactions