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As different sectors consider how they would implement the US Securities and Exchange Commission’s (SEC) proposed rules on climate-related disclosures, media and telecommunications will be a particularly interesting case study. Unlike industries with tangible products like retail, for example, the environmental impact of media and telecommunications can be more difficult to quantify when it comes to turning on a television or mobile device, streaming digital content, or even hosting events. of live entertainment.
The proposed disclosure rules have the potential to significantly raise the bar for how media and telecommunications companies identify, measure and disclose climate risks and opportunities to investors and the broader market. As the rules make their way through the approval process, finance leaders at media and telecommunications companies, many with operations around the world, are thinking critically about what the proposal means for their businesses, both strategically and economically. operationally. As the industry prepares for a new era of regulation, leaders tasked with reporting on preparedness and compliance must keep four considerations in mind:
- Your data collection processes and controls are a must.
Until now, the companies have operated under vastly different standards and reporting frameworks, which the SEC, along with various national and international bodies, hopes to remedy. One of the main goals of the proposed rules is to provide investors with comprehensive and comparable ESG data, including climate-related data, to inform their decision-making. When evaluating whether your ESG data program is ready for the rigor and timeliness of financial reporting, consider these questions:
- How does my company collect the data? Many media and telecommunications companies do not currently collect extensive ESG data, and where they do, collection methods vary widely. While some companies manually enter data from meter readings, utility bills, and other raw data sources, others have switched to more sophisticated technologies to automate the process. For many media and telecommunications companies, a major challenge will be to standardize data collection methods and do so in a time frame compatible with financial reporting.
- Who is responsible for data collection? While board oversight of ESG reporting is standard for most media and telecommunications companies, the day-to-day work of data collection can fall to a variety of groups. Some companies have established climate-specific teams, while others rely on general operations teams to collect data that is ultimately synthesized by the finance team. A recent development we are seeing is the use of financial controller groups to implement controls to ensure that data is collected and reported completely and accurately.
- How are foreign affiliates taken into account? Most of the big media and telecommunications companies have multinational operations. This adds a layer of complexity as these subsidiaries may be subject to rules set by international bodies, such as the International Sustainability Standards Board (ISSB) or the European Financial Reporting Advisory Group (EFRAG). Pay close attention to developments in the US and abroad to ensure data can be used in all relevant jurisdictions.
- If your Scope 3 emissions are material, they matter.
Perhaps the most pervasive challenge for media and telecommunications companies at all stages of the ESG reporting process is collecting and reconciling data on Scope 3 greenhouse gas (GHG) emissions, or the emissions of upstream partners and descending. In the SEC proposal, public issuers would be required to disclose Scope 3 emissions if they are material or part of established emissions targets.
This presents two distinct challenges for media and telecommunications companies. First, apart from telecommunications network plants and facilities, the physical infrastructure of many media and telecommunications companies is sparse compared to other industries. Therefore, Scope 3 emissions will likely constitute a significant percentage of total GHG emissions. Whether they are material or part of emissions targets, this creates a logistical challenge to track all the data needed for reporting. And second, the process of tracking that data can lead to the discovery of trading partners in the supply chain that are less mature in measuring and reducing their emissions, resulting in a larger-than-expected increase in the total reported carbon footprint. . Starting to calculate your Scope 3 emissions now will help you avoid surprises later.
- Climate change can have a quantitative impact on your balance sheet.
Under the proposed rule, public companies would report the financial impact of weather events and transition activities in their consolidated financial statements if the aggregate impact is 1% or more of a specific financial statement line item. The same rule would apply for related costs and expenses if the aggregate impact reaches a threshold of 1%.
For telecommunications companies in particular, infrastructure can be highly vulnerable to weather events, which may become more severe and frequent with climate change. Finance leaders at these companies must be able to assess the financial impact, present and future, of climate-related risks on balance sheets, earnings and cash flows to be prepared for new reporting obligations.
- It’s time to upskill your people on ESG.
In an effort to align ESG and financial reporting, the SEC has set an ambitious timeline for climate-related disclosures, one that few media and telecommunications companies are ready to meet. Of the companies that currently issue ESG reports, most do so several quarters after the next fiscal year. This is a far cry from the 60 to 90 day deadline imposed on Form 10-K filings.
To prepare for accelerated timelines, media and telecommunications companies should prioritize expanding their ESG reporting capabilities. This may include hiring outside experts in the field. However, since ESG reporting is relatively new, there is still a limited amount of experience in the market. Training current employees now is a great way to mitigate this challenge in the future.
The bottom line
ESG reporting is a complex process and no company will get it exactly right the first time. It will be an iterative process that will require flexibility and adaptability at all levels of the business. To help ease these growing pains, we believe media and telecommunications companies should start preparing now, before the final regulation is enacted. For those just beginning to develop ESG reporting processes, a good first step is to conduct a reporting readiness assessment. You’ll discover any process, control, or reporting infrastructure that needs updating or implementation before it’s too late. The demand for high-quality ESG data is not going away anytime soon, and companies that prepare now will build trust with key stakeholders and gain a competitive advantage.
This opinion piece is based in part on a audit information published by KPMG USA
Frank Albarella, Jr. is National Audit, Media and Telecommunications Leader at KPMG US Maura Hodge is ESG Audit Leader for KPMG US.